2025 (5) TMI 352 - AT - Income Tax

Addition on the account of silver found during the course of search - as submitted the silver found during course of search was in his possession as head of the family and was duly covered by surrender of Rs. 5.00 crores made by assessee s younger brother staying jointly with the assessee - HELD THAT - Neither the assessee nor his brother in his earlier statements made any mention of the aforesaid silver bars being either owned by the assessee s brother or being part of the aforesaid disclosure of Rs. 5 Cr. There is no supporting evidence for the claim that the silver bars belonged to the assessee s brother. An affidavit made after substantial lapse of time since date of search aimed at helping the assessee does not have any credibility when weight of other evidences and facts is heavily against the assessee and is to be treated as an after thought. AO of the assessee and the assessee s aforesaid brother was the same. Therefore the contention of the assessee that in the assessment proceedings had accepted the ownership of the aforesaid silver bars in the hands of Shri Satrughan Man singh the assessee s brother deserves to be rejected being baseless; because if the Assessing Officer had accepted the ownership of the silver bars in the hands of the assessee s brother then the Assessing Officer would not have added the amount in the hands of the assessee. Claim of the assessee that the silver bars found at his residence belonged to his brother the claim being made solely on the basis of aforesaid affidavit is to be rejected in the absence of any supporting evidences. The impugned appellate order of the CIT(A) is found to be just and reasonable and in accordance with law having regard to the specific facts and circumstances of the present case. No interference is called for in the impugned order of the CIT(A) and the aforesaid addition is confirmed. Therefore the appeal of the assessee is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the addition of Rs. 10,05,000/- on account of silver bars found during search proceedings under section 132 of the Income Tax Act, 1961 ("the Act") was justified and sustainable in law and on facts.

(b) Whether the silver bars found at the residential premises of the assessee belonged to the assessee or to his brother, and if they belonged to the brother, whether the addition made in the hands of the assessee was erroneous.

(c) Whether the presumption under section 132(4A) of the Act regarding ownership of assets found during search proceedings was rebutted by the assessee.

(d) Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] correctly applied the provisions of the Act and principles of natural justice, equity, and fair play in making and confirming the addition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Justification and legality of addition of Rs. 10,05,000/- on account of silver bars found during search

Relevant legal framework and precedents: The addition was made under section 69 of the Act, which relates to unexplained investments. The search was conducted under section 132, and statements recorded under section 132(4) and the presumption under section 132(4A) were relevant. The assessee relied on precedents including the Supreme Court decision in P.R. Metrani v. CIT (2006) 287 ITR 209, which held that the presumption under section 132(4A) is rebuttable and does not extend to regular assessment proceedings.

Court's interpretation and reasoning: The AO found that silver bars valued at Rs. 10,05,000/- were found at the assessee's residence but were not disclosed in wealth tax returns of the assessee or his family members. The assessee initially admitted ownership in his statement recorded under section 132(4). The AO rejected the assessee's later claim that the silver bars belonged to his brother, noting that neither the assessee nor his brother had claimed ownership of the silver bars in their respective statements or during surrender of income. The CIT(A) upheld the addition, finding no credible evidence to rebut the presumption of ownership by the assessee.

Key evidence and findings: The silver bars were physically found at the assessee's residence during search. The assessee's statement under section 132(4) admitted ownership. The brother's surrender of Rs. 5 crores did not specifically cover the silver bars. The affidavit filed by the brother claiming ownership was after a substantial lapse of time and considered an afterthought. The AO for both the assessee and his brother was the same, and the AO did not accept the brother's ownership in his assessment order.

Application of law to facts: The presumption under section 132(4A) that assets found during search belong to the person in possession was not rebutted by credible evidence. The assessee failed to substantiate the source of acquisition of the silver bars. The affidavit filed belatedly was insufficient to displace the presumption. The addition under section 69 was therefore justified.

Treatment of competing arguments: The assessee argued that the silver bars belonged to his brother and were covered by the brother's income surrender, supported by affidavits and submissions. The AO and CIT(A) rejected this, emphasizing the absence of any contemporaneous statement or evidence supporting the claim and the inconsistency with the assessment records of the brother.

Conclusion: The addition of Rs. 10,05,000/- on account of silver bars was legally sustainable and correctly made by the AO and confirmed by the CIT(A).

Issue (b) - Ownership of silver bars and effect of brother's income surrender

Relevant legal framework and precedents: The presumption of ownership under section 132(4A), the requirement of disclosure in wealth tax returns, and the principles governing surrender of undisclosed income were considered. The Court also referred to decisions such as Dy. CIT vs. Sanmukhdas Wadhwani (85 ITD 734) and ITAT Jabalpur Bench in ACIT v. Satyapal Wassan (2007) 295 ITR (AT) 352, which emphasize the necessity of cogent evidence to rebut presumption and the duty of the AO to verify ownership and source of assets.

Court's interpretation and reasoning: The Court observed that neither the assessee nor his brother had claimed ownership of the silver bars at the time of search or in their statements under section 132(4). The brother's surrender of Rs. 5 crores did not specifically include the silver bars. The affidavit filed later was considered an afterthought and lacked credibility. The AO's acceptance of the brother's surrender did not extend to ownership of the silver bars, as the AO did not exclude the addition in the hands of the assessee. The Court found the claim of ownership by the brother baseless.

Key evidence and findings: Statements under section 132(4) of both the assessee and his brother did not claim ownership of the silver bars by the brother. The brother's surrender letter and assessment order did not mention the silver bars. The affidavit was filed well after the search and assessment proceedings commenced.

Application of law to facts: The Court applied the principle that possession prima facie indicates ownership unless rebutted by credible evidence. Since the brother did not claim ownership contemporaneously and the surrender did not cover the silver bars, the addition in the hands of the assessee was justified.

Treatment of competing arguments: The assessee's argument that the silver bars belonged to his brother and were covered by the surrender was rejected on the ground of lack of contemporaneous evidence and inconsistency with the assessment records.

Conclusion: The claim that the silver bars belonged to the brother and were covered by his surrender was rejected. The addition rightly stood in the hands of the assessee.

Issue (c) - Rebuttal of presumption under section 132(4A) of the Act

Relevant legal framework and precedents: Section 132(4A) creates a presumption that assets found during search belong to the person in possession. The Supreme Court in P.R. Metrani v. CIT held this presumption is rebuttable and does not extend to regular assessments. The assessee relied on this principle to argue that the presumption was rebutted by affidavits and submissions.

Court's interpretation and reasoning: The Court acknowledged the rebuttable nature of the presumption but emphasized that the assessee failed to provide cogent and contemporaneous evidence to rebut it. The affidavit filed after a substantial delay was insufficient. The AO was not obliged to accept a belated claim unsupported by other material. The presumption thus stood unrebutted.

Key evidence and findings: Absence of any statement or evidence at the time of search or assessment proceedings indicating ownership by the brother. The affidavit was filed only after the assessment order.

Application of law to facts: The presumption under section 132(4A) was not rebutted by credible evidence. The Court upheld the application of the presumption in this case.

Treatment of competing arguments: The assessee's reliance on the affidavit and submissions was rejected as afterthoughts. The AO's and CIT(A)'s findings were supported by the record.

Conclusion: The presumption under section 132(4A) was not rebutted; hence, the addition was valid.

Issue (d) - Compliance with principles of natural justice, equity, and fair play

Relevant legal framework: The principles require that additions be made only on the basis of credible evidence and after giving an opportunity to the assessee to explain. The assessee contended that the addition was arbitrary and contrary to these principles.

Court's interpretation and reasoning: The Court found that the AO gave adequate opportunity to the assessee to explain the source and ownership of the silver bars. The assessee's explanations were considered and rejected due to lack of evidence. The CIT(A) independently examined the facts and confirmed the addition. The process was found to be fair and in accordance with law.

Key evidence and findings: The record shows statements recorded under section 132(4), written submissions, affidavit, and assessment orders. The assessee was heard at all stages.

Application of law to facts: The procedure adopted complied with natural justice. The addition was based on material evidence and proper application of law.

Treatment of competing arguments: The assessee's claim of arbitrariness was rejected for lack of merit.

Conclusion: No violation of natural justice or principles of equity was found; the addition was justified.

3. SIGNIFICANT HOLDINGS

"It is not in dispute that silver bars valued at Rs. 10,05,000/- were found at the residential premises of the assessee, at the time of search under section 132(4) of the Act. It is also not in dispute that the aforesaid silver bars have not been disclosed in Wealth Tax Returns of either the assessee or any of his family members."

"Neither the assessee nor his brother Shri Satrughan Man Singh in his earlier statements made any mention of the aforesaid silver bars being either owned by the assessee's brother or being part of the aforesaid disclosure of Rs. 5 Cr. An affidavit made after substantial lapse of time since date of search, aimed at helping the assessee does not have any credibility when weight of other evidences and facts is heavily against the assessee, and is to be treated as an after thought."

"If the Assessing Officer had accepted the ownership of the silver bars in the hands of the assessee's brother, then, the Assessing Officer would not have added the amount in the hands of the assessee. In view of the foregoing, we are of the view that the claim of the assessee that the silver bars found at his residence belonged to his brother, the claim being made solely on the basis of aforesaid affidavit is to be rejected in the absence of any supporting evidences."

"In the statement u/s 132(4) of the Act, appellant never come out with the statement that he is not the owner of such Silver Bars and the same represent's the assets of his brother. Similarly, his brother, Shri Satrughan Man Singh in his statement u/s 132(4) of the Act did not give any statement for ownership of such Silver Bars."

"It can be safely presumed that ownership of Silver Bar belongs to the appellant and it was the duty of the appellant to substantiate its source of acquisition with cogent evidence. In the present factual matrix of the case, appellant has failed to do so."

"The presumption under section 132(4A) stands unrebutted by credible evidence."

"The Assessing Officer has correctly made the addition in respect of Silver Bars, which is hereby confirmed."