TaxTMI 
TaxTMI 
2023 (11) TMI 197
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....ing disposed of by this common order for the sake of convenience. 3. Briefly stated, search action u/s 132 of the Act was undertaken in the case of Shri Rakesh Agrawal Group on 12.02.2015. The search action included numerous residential and business premises of the assessee-group, including premises of the main assessee Shri Rakesh Agrawal, his family members and employees of the company M/s. Shiva Pharmachem Pvt. Ltd. During the course of search action, valuable items, namely jewellery, sculptures, paintings, artworks etc. were found. After seeking explanation from the assessee(s) regarding the source of the same and not being convinced with it, addition on account of unexplained investment in jewellery and artworks was made in the hands of the assessees before us. In the case of Shri Rakesh Agarwal, addition was also made on account of credits in foreign bank account with Merrill Lynch Bank. The details of the addition made on account of the above in the hands of the different assessees are as under:- Name of the assessee Addition made on account of unexplained investment in Jewellery (in Rs. ) Carry forward of business loss (in Rs. ) Painting, Sculpture & artwo....
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....stri Nagar, Nizampura, Baroda 6,54,395 Locker No. 297 with IDBI Bank Race Course Branch, Baroda 9,85,840 Total 32,81,10,985 9. Shri Rakesh Agrawal claimed ownership of this gold and diamond jewellery of Rs. 32.81 crores found, amongst the following; * family members including Shri Rakesh Agrawal, his wife Smt. Umadevi Agrawal, his two children namely Rahul and Vishal Agrawal and wife of Rahul and Vishal Agrawal namely Madhavi and Ruchika Agrawal. * Some jewellery was also attributed as owned by the mother and father of Shri Rakesh Agrawal i.e. Smt. Geetadevi Agrawal &Shri Shivbhagwan Agrawal. * Further, the ownership claim of the jewellery was also made in the group company namely M/s. Tash Investment Pvt. Ltd. and M/s. Geetganga Investment Pvt. Ltd. 10. The total gross weight of jewellery found was 18,086 gms out of which almost all of gross weight 13496 gms was explained as owned and disclosed in the Wealth Tax Returns of assessees right upto the immediately preceding year i.e. AY 2015-16 based on valuation as per report of Registered Valuer of the group. The remaining was surrendered to tax in hands of Sh.Rakesh Agarwal as undisclo....
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..... He held that if the jewellery already declared in wealth tax returns matched in description and gross weight with that found during search and no other similar jewellery as disclosed in the wealth tax return was found during search, no adverse view could be taken against the assessee. As regards the jewellery found during search remaining unmatched he gave credit for the weight of unmatched jewellery disclosed in the wealth tax returns. The balance jewellery was confirmed as unexplained in the hands of different assesses. He rejected both the basis of the AO for making addition of matched jewellery; of huge difference in valuation of jewellery by DVO as compared to that by the Registered Valuer of the assessee and the jewellery in two lockers found not to be operated during valuation 'by Registered Valuer. Aggrieved by the same the department has come in appeal before us. 13. During the course of arguments made before us Ld.DR relied heavily on the order of the AO while the Ld.Counsel for the assessee relied on the order of the Ld.CIT(A). 14. We have heard both the parties and gone through the orders of the authorities below and also the documents referred to before us. ....
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....ch will be separately dealt in the appeal order in the case of Smt.Ruchika Agrawal for A.Y.2015-16. 15. A perusal of the above reveals that the Ld.CIT(A) noted that out of jewellery found of 18,085.700 gms, most of it in weight was disclosed in wealth tax returns already filed by the assesses, being 15, 341.244 gms. The remaining he noted was either returned to tax as undisclosed in the hands of Rakesh Agarwal 2,026.810 gms, Madhavi Agarwal 1,925.60 gms and the balance to be explained in the hands of Ruchika Agarwal. These facts are not disputed by the Revenue. And have been demonstrated before us by way of letters filed during assessment proceedings to the above effect placed before us in voluminous paper books in the case of all the assesses. More significantly; * Working of jewellery declaration filed to the AO vide letter dated 30-04-2015, placed at P.B Page No.1-3,disclosing the above noted fact of most of the jewellery found during search being already disclosed in wealth tax returns and the balance being surrendered to tax. * The above declaration corroborated with Wealth tax returns filed to AO placed before us at P.B 15-57. 16. Besides, we have n....
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....ny inference/conclusion against the person searched that nothing more has remained undiscovered by the Department. And in such a case any such presumption of separate sets of similar jewellery and ornaments as adopted by the AO should be based only on hard undisputed facts and not on mere surmises and conjectures. On the similar logic any jewellery& ornament only on the basis of its valuation by the Department's Valuer on the date of search being significantly different (higher or lower) from the valuation by the Registered Valuer(s) of the appellant cannot be basis of concluding that there might be two sets of the jewellery& ornaments of same description and gross weight. 9.3 Valuation in case of precious gems and stones is a matter of estimate of size, height and quality and not an exact science and there may be tendency on part of the taxpayer to undervalue them for lower incidence of taxes. It is also possible specially in the case of significant size and high quality diamond and other precious stones/gems that if a piece of diamond is picked up raw at source then got cut and polished or even if a cut and polished diamond but acquired at source from grey market, the ac....
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....cted by the AO on account of his conclusion arising out of last operation of lockers in Bank of Baroda and huge difference in valuation of various items by the DVO as compare to earlier valuation of RV for the purpose of WT returns) leaving the total unmatched jewellery and ornaments of gross weight 8,688.050 gms consisting of gold weight 7,324.914 gms and diamond 1047.050 Ct. Further there is additional jewellery available as per the WT returns and valuations of the Group of gross weight 4,744.840 gms consisting of gold weigh L 3387.497 gms and diamond 825.040 CL (This 3,387.497 gms of gold includes 2,271.147 gms belonging to Shri Rakesh Agrawal and 1,116.350 gms belonging to Smt. Madhavi Agarwal). The additional jewellery available as per to WT returns, shouldals obegiven credit towards explaining the jewellery found during the search. Thus after giving credit of these unmatched but disclosed available jewellery, balance jewellery and ornaments required to be explained by the Group comes to gross weight of 3,943.260 gms comprising of gold weight 3,937.147 gms and diamond 222.010 Ct. The jewellery and ornaments already admitted as unexplained and included in the IT return for A.Y.....
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....dismissed the case of the AO holding that if the locker was found to be last operated in 2011, then the jewellery found therein belonged to that year and could not be added as unexplained in the hands of the assessee for A.Y 2015-16, the impugned years before us. His findings in this regard are at para 9.6 of the order in the case of Madhavi Devi as under; 9.6 .Further in the context of the over sweeping conclusion arrived at by the AOover-emphasizing the last date of operation of lockers based on the Bank's record and the huge difference in valuation of jewellery and ornaments by the Department's Valuer on the date of search and valuation by the Registered Valuer for the purpose of Wealth-tax etc., it has to be noted that the jewellery held unexplained out of the jewellery found should have been added in A.Y. (corresponding to the F.Y. in which the locker was last operated). These such jewellery could not be added in the hands of Group in the AY 2015-16 and so also unmatched/unexplained jewellery should not be added in the hands of person in whose possession it was found disregarding the claimed ownership of family members and relatives. 21. He also noted that the conc....
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....emselves. 23. With respect to the findings of the Ld.CIT(A) on jewellery which matched in description and weight with the wealth tax returns, being 9,397.650 gms comprising of gold weight 8,016.330 gms and diamond 1,485.900 Ct., and no other jewellery of matching description being found during search, we are in complete agreement with him that that the only logical conclusion was that such jewelleries are to be taken as those disclosed in the Wealth Tax Returns only. We completely agree with ld. CIT(A) that it is preposterous to hold that such identical jewellery found during search as different from that disclosed in the Wealth Tax Returns when there is no jewellery found during search identical in all terms with that disclosed in the Wealth Tax Returns. The finding of the Ld.CIT(A) in this regard is very pertinent that having conducted search and covered multiple premises and numerous receptacles in the group cases, the convenience of balance has to be in favour of the person searched and the inference/ conclusion against the person searched is that nothing more has remained undiscovered by the Department. That any presumption of separate set of similar jewellery should be bas....
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....anied with the attendance register of 2007 and 2011. The certificate of the bank is reproduced at page no. 14 of the assessment order and the attendance register for locker operation is reproduced at page no. 15 and 16 of the assessment order in the case of Smt. Madhavi V. Agrawal. The facts relating to the issue are that, in locker No.907, jewelleries worth Rs. 7,51,02,204/- as valued by DVO was found and in locker No. 1091 jewelleries worth Rs. 26,93,200/- was found. The assessee had claimed all these jewelleries to be returned to Wealth Tax Returns of different assessees as per valuation report of the Registered Valuer dated 31.03.2012. The Registered Valuer had stated to have valued the jewellery after physically examining them. However, it was subsequently admitted by the assessees that on 31.03.2012 the keys of these two lockers were not available and, therefore, the Registered Valuer had certified their value on the basis of his certificate issued in 2009. The certificate of the bank submitting the last date of operation of these two lockers along with the daily register of operation of lockers as evidenced clearly demonstrates that locker No.907, which contained the substan....
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....oupled with copies of bills of purchase and bank statements showing payment through banking channels furnished by the assessee sufficiently evidence the fact of jewellery purchased over the years from disclosed sources. With nothing found by the department during search of such jewellery being converted into any other asset we do not find any infirmity in the Ld.CIT(A) giving credit of the same to the unmatched jewellery found during search. 29. As for the balance unexplained jewellery Ld. CIT(A) has, noted that the assessees themselves have admitted certain jewelleries as unexplained and included in their Income-tax Returns for the impugned year. He noted the same to be of gross weight of 2026.810 gms, comprising of gold weight 2201.528 gms and diamond 82.890 Ct., reducing the same from the balance jewelleries and ornaments required to be explained by the Group which came to gross weight 3,943.260 gms, comprising of gold weight 3,937.147 gms and diamond 2,026.810 Ct., he held that the unexplained jewellery remaining to be explained remained in the hands of Smt. Ruchika Agrawal entirely who is not an assessee before us. This finding of fact by the ld. CIT(A) has also remained un....
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.... cannot be the basis for holding that the investment to the extent valued by the valuer was made in artwork so as to make addition on account of unexplained source of investment in the same in terms of Section 69B of the Act; (c) that even on merits, ld. CIT(A) found no case with the Department noting that the assessee was an art connoisseur and during search itself entire details of artworks owned by the assessee along with the basis of acquiring artworks, either by way of purchase or during workshop was made available in an excel-sheet. (d) That it was on the basis of this excel-sheet found with the assessee that the Department became aware of the art-pieces of the assessee; and, on the basis of the disclosure of source of acquiring these artpieces, the Department had made further inquiries regarding the genuineness of the same. (e) That no incriminating material otherwise was found by the Department; and, this excel-sheet found from the assessee could not be treated as an afterthought for explaining the source of investment in the artworks. 33. During the course of hearing before us, ld. DR drew our attention to the Assessing Officer's findingin mak....
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....have been received without any consideration." ii) The Assessing Officer has also disbelieved assessee's explanation of having purchased certain artworks in the absence of any details furnished with regard to the said transactions and purchase bills also not having been submitted in some cases and also noting the fact that in most of the cases, where the bills were furnished, the addresses of the sellers were not mentioned. He also disbelieved the explanation of the assessees for the reason that the cost of purchase of these items was abnormally low as compared to the value estimated by the Valuer. His findings in this regard are contained in paragraph No. 24.12(ii) as under:- "24.12(ii).... In cases where artworks are claimed to be purchased from individuals, no details, except the name of the individual & the cheque number was provided. Further, it is important to mention here that only in very few cases, purchase bills have been submitted by the assessee but on most of such bill proper addresses of the sellers are not mentioned, mere mention of the name of the seller doesn't prove the identity of the seller. Furthermore, the purchase cost of the it....
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....re made, which details were found with the assessee during search itself, the substitution of the value of artworks with that as valued by the artwork valuer is not acceptable and, in this regard, we agree with ld. CIT(A) that the work of art has no market or exchange for dealing in the same and every art piece has a different value in the eyes of the buyer and the seller. Therefore, there could be no basis in determining the fair market value of artwork. That there can be no parity in determining the fair market value of artwork piece of jewellery or ornaments whose value of capable of being reasonable estimated basis of the weight of precious items used therein, but in the case of artwork its value is not determined on the basis of the cost involved in it, but the basis more on the value placed to its creativity which is immeasurable and varies from person to person and from time to time. We agree with the ld. CIT(A) that the value of artwork is only a notional figure of estimation at a given point of time only and, therefore, cannot be relied upon for determining the cost of investment made in the artwork. His findings in this regard at paragraph 76.2 to 76.8 are as under:- ....
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....t many times unexpected and unimaginable higher price and some at almost or below the reserve price and few are not sold at all. There are many many art work of renowned artists offered to sale or auction which do not find any buyer at all. Furthermore the art work is also made by an artist on his own inclination and while some may be for sale if possible but many of them are not for sale at all and remain private collection of the artist or any collector of art or of any investor in art. 76.5 Further there is no market or exchange for dealing in art work. We find minuscule art work in art exhibitions and in art galleries and read of some art work put to auction in newspaper or art circles. 76.6 The point of narrating some of these facts is that the art has no standardized commercial market, that the artworks are not often traded (and probably even not tradable and that value of an art is not that anybody can realistically and scientifically measure/value. One value is as per the artists, other various values are as per art experts & valuers and some other value is a quotation of a buyer, if an art work finds a buyer. As they say beauty lies in the eyes of the beh....
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....nd against which returns were filed for all the six assessment years prior to the year in which the search was conducted and also for the year of search i.e. AY 2015-16, which is impugned year before us. The assessee disclosed income in relation to the transactions disclosed in the foreign bank account under the head "business and profession". For the first two years i.e. AY 2009-10 and 2010-11, he returned loss which was carried forward to the succeeding yeas and set off against the profits of business returned in the said years. In the assessments framed, the Assessing Officer disallowed the losses returned by the assessee in the AY 2009-10 and 2010-11 and made addition under Section 68 of the Act of the credit in the foreign bank account of the assessee. In the impugned year, therefore, before us the addition was made on account of the credit in the foreign bank account amounting to Rs. 1,38,95,552/- and the assessee was also denied the benefit of set off of business loss of Rs. 2,19,70,774/-. The ld. CIT(A) allowed the same. 41. Before us, the ld. Counsel for the assessee, at the outset itself, pointed out that an identical issue, which had arisen in the earlier years also i....
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....lause (a), the income-tax payable shall be the aggregate of- (i) the amount of incometax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent.; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).] (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance 3615[or set off of any loss] shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) 3616[and clause (b)] of sub-section (1).] 29. The returns filed u/s 153A of the Act disclosing losses emanating from incriminating material is therefore as per law to be treated as filed in returns u/s 139 of the Act and entitled to be set off against profits from such incriminating material in subsequent years. And to this extent of set off, they certainly do not qualify as fresh claim made in return filed u/s 153A of the Act, since they were necessarily to be disclosed at the same time and alongwith the positive incomes arising from the incriminating material. These losse....
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....lained by the assessee as having been duly accounted for and returned as business income or disclosed under the Black Money Act or wrongly credited and thus subsequently reversed by the Bank. After thoroughly examining these evidences and reconciliations, the Ld.CIT(A) has accepted the plea of the assessee that the said entries could not be taxed as unexplained ,having been returned as business income or explained otherwise. All these evidences were also filed before us in voluminous paper book. The Ld.DR was unable to point out any infirmity in the finding of the Ld.CIT(A). He was unable to point out any credit entry wrongly accepted by the Ld.CIT(A) as duly explained." The ld. DR fairly agreed with the same. 42. In view of the same, the issue relating to the addition made on account of unexplained credit in foreign bank account and set off of brought forward business loss having been decided in favour of the assessee in the preceding years by the ITAT, and no distinguishing facts have been brought to our notice, there is no case with the Revenue challenging the same addition and disallowance in the case of the assessee for the impugned year before us i.e. AY 2015-16. There ....
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....in jewellery found and seized from locker no.907 on protective basis without considering the fact that the assessee could not explain the source of investment and also could not submit the documentary evidences regarding the source of unexplained jewellery like purchase bills, vouchers etc. 45. While dealing with the issue No.1 regarding unmatched jewellery in the foregoing paragraphs, we have upheld order of the Ld.CIT(A) in the case of all the assessee before us deleting the addition of all the matched jewllery and the unmatched jewellery to the extent of jewllery remaining unmatched as disclosed in the wealth tax returns. Therefore, all these identical grounds raised in the above appeals are dismissed. 46. Next common ground raised in appeals is Ground No.4 in ITA No.718/Ahd/2018, Ground No.4 in ITA No.726/Ahd/2018 and only ground no.1 in ITA No.728/Ahd/2018, which is relating to unexplained investment in painting, sculpture & art work. The relevant grounds are reproduced hereunder appeal-wise for clarity: ITA No.718/Ahd/2018 "(4) On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition made on account of une....
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....ow only ground remaining to be adjudicated is ground no.2 and 3 raised in ITA No.718/Ahd/2023. They read as under: "(2) On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowing the carry forward of business loss of Rs. 2,19,70,774/- without considering the fact that the assessee had not claimed loss in the return of income filed u/s. 139(1) of the I. T. Act,1961, but claimed losses when filed the return u/s. 153A. (3) On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 1,38,95,552/- made on account of unexplained credit in foreign bank account u/s. 68 of the Act, without considering the fact that the addition was made by A.O. after due consideration, and also the assessee failed to give any documentary proof to explain the source of credit entries in the said bank account." 49. While dealing with the issue No.3 regarding addition made on account of unexplained credits in foreign bank account and disallowance of set off of business loss in the foregoing paragraphs of this order, the following the order of the ITAT passed in favour of the assessee in the p....