2002 (11) TMI 270 - AT - Income Tax

Unexplained investments in the FDRs along with accrued interest thereon - FDRs including the interest which has been offered for taxation under VDIS - undisclosed investment in gold jewellery and addition on account of undisclosed investment in silver ornaments weighing 11, 545 gms

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

• Whether the addition of Rs. 1,70,000 as unexplained cash in the hands of the assessee is justified.
• Whether the addition of Rs. 27,04,539 representing unexplained investments in Fixed Deposit Receipts (FDRs) along with accrued interest is warranted.
• Whether unexplained investments in gold jewellery amounting to Rs. 59,985 should be added to the assessee's income.
• Whether unexplained investments in silver ornaments weighing 11,545 grams and valued at Rs. 77,138 should be included as undisclosed income.
• Whether the additions made on account of various FDRs found or noted during search and seizure are justified, including the treatment of renewals, maturity values, and declarations under the Voluntary Disclosure of Income Scheme (VDIS).
• Whether the assessing officer's failure to verify certain FDRs with the banks before making additions affects the validity of such additions.
• Whether the customs and social context regarding possession of jewellery and silverware affect the assessment of undisclosed income in respect of these assets.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Addition of Rs. 1,70,000 as unexplained cash

The unexplained cash was found during a search of the premises of the assessee's husband, with a protective addition made in the assessee's hands. The Tribunal referred to its findings in the husband's case, where the addition was deleted. Applying the same reasoning, the addition of Rs. 1,70,000 in the assessee's hands was deleted. The legal principle applied is that protective additions in the hands of related parties must be consistent with substantive findings in the primary case.

Issue 2: Addition of Rs. 27,04,539 for unexplained investments in FDRs

The assessing officer made additions on account of undisclosed investments in FDRs found during the search. The assessee contended that some additions were double counted-once on maturity value and again on renewal-and that certain FDRs belonged to a trust (Indrani Devi Benefit Trust) created by will, with the assessee as trustee and beneficiary. The trust's corpus of Rs. 3,50,000 was invested in FDRs, which were renewed over time, reaching a maturity value of Rs. 6,83,641 at the time of search. These FDRs were offered for taxation under VDIS and accepted by the Commissioner.

The Tribunal examined the trust deed, witness testimony, and bank certificates confirming the FDRs were held on behalf of the trust. The Tribunal held that since the trust's investments were not previously taxed and were declared under VDIS, additions to the assessee's income on these FDRs were unwarranted and deleted.

For several individual FDRs, the Tribunal analyzed the following:

• FDRs offered under VDIS and accepted by the Commissioner were excluded from additions.
• FDRs found only as diary notations without corroborating evidence or physical documents were not sufficient to justify additions under Chapter XIV-B (search and seizure provisions), and such additions were deleted.
• Where specific FDRs were neither found nor seized but noted in seized diaries, the Tribunal set aside the additions and remanded the matter to the assessing officer for further investigation, including verification with banks, allowing the assessee to produce evidence.
• Where additions were made in the assessee's hands but were already considered in the husband's case, such additions were deleted to avoid double taxation.

The Tribunal emphasized that additions under Chapter XIV-B cannot be made merely on surmises and doubts without concrete evidence. It also highlighted the assessing officer's duty to verify facts with banks before making additions, which was not done in some cases, warranting remand.

Issue 3: Addition of Rs. 59,985 for undisclosed gold jewellery

During search, gold jewellery weighing 470.400 grams (net 441.200 grams) was found. The assessee claimed 266 grams belonged to her and was declared in wealth tax returns since 1982-83. The balance belonged to her daughter, received as customary gifts at marriage. The Tribunal referred to the Board's Circular No. 1916 dated 11-5-1994, which prescribes that gold jewellery up to 500 grams may not be seized, indicating that such possession is normal for an ordinary family.

Applying this principle, the Tribunal held that additions for unexplained investment in gold jewellery were not justified and deleted the addition.

Issue 4: Addition of Rs. 77,138 for undisclosed silver ornaments

The silver articles found included thalis, pandan, glasses, jugs, plates, bowls, katories, and spoons, weighing 11,545 grams. The assessee stated these belonged to her daughter, received as customary gifts at marriage, with details of donors provided. The Tribunal considered the nature, quantity, and social customs regarding these items and held that such possession was reasonable and customary. Therefore, the addition was unwarranted and deleted.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning includes:

"We hold that the addition to the total income as undisclosed income under Chapter XIV-B cannot be made merely on the ground of surmises and doubts."

"The Board has considered the issue and felt that gold jewellery to the extent of 500 gms. could be possessed by an ordinary family. The intention behind such circular was, therefore, very clear."

"As the trust was not assessed to tax, the following FDRs were offered for taxation under VDIS-1997... the addition on account of these FDRs including the interest which has been offered for taxation under VDIS is deleted."

Core principles established include:

• Protective additions in the hands of related parties must be consistent with substantive findings in the primary case.
• Additions under Chapter XIV-B require concrete evidence and cannot be based on mere suspicion or diary notations without corroboration.
• Investments held in trust, properly evidenced, and declared under VDIS cannot be treated as undisclosed income of the trustee.
• Customary possession of jewellery and silverware within prescribed limits should not be treated as unexplained investment.
• Assessing officers must verify disputed financial instruments with banks before making additions.

Final determinations on each issue:

• The addition of Rs. 1,70,000 as unexplained cash was deleted.
• The addition of Rs. 27,04,539 on account of FDRs was partly deleted, with certain FDRs accepted under VDIS and others requiring further investigation.
• Additions for gold jewellery and silver ornaments were deleted based on social customs and Board circulars.
• Additions based solely on diary notations without supporting evidence were deleted.
• Matters requiring further verification were remanded to the assessing officer for investigation and reassessment.