2025 (5) TMI 1316 - AT - Income Tax

Addition as unexplained assets in the form of gold and jewellery - assessee an individual was subject to a search u/s 132 - HELD THAT -It is an admitted fact that the assessee declared income falling under the higher tax bracket. The income declared over the years is sufficient to justify the impugned investment in gold. Thus we hold that the addition made by the lower authorities is not sustainable. The revenue has not brought any contrary evidence regarding the assessee s declared income except for the impugned investment in gold. Therefore the value of the unexplained gold is insignificant compared to the declared income. Accordingly we set aside the findings of the CIT(A) and direct the AO to delete the addition. The assessee s ground of appeal is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in this appeal are:

• Whether the addition of Rs. 8,14,412/- representing unexplained assets in the form of gold and jewellery is justified in the absence of direct evidence linking the gold/jewellery to an undisclosed source?
• Whether the aggregate declared income of the assessee over several years justifies the source of the disputed gold/jewellery, thereby negating the addition made by the assessing authorities?
• Whether the onus lies on the assessee to explain the source of investment in gold and jewellery, and whether this onus was discharged in the present case?
• The validity of the assessment under section 143(3) of the Income Tax Act, though this ground was ultimately not pressed by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Addition of Unexplained Gold/Jewellery

Relevant legal framework and precedents: The assessment was made under the provisions of the Income Tax Act, particularly relating to unexplained assets. Section 132 of the Act empowers search and seizure operations, and unexplained investments or assets found during such operations can be added to the income of the assessee if the source is not satisfactorily explained. The Tribunal referred to the decision in Kirti Singh Vs. ACIT, wherein the Delhi Tribunal held that for high-net-worth individuals, possession of substantial jewellery cannot be considered abnormal or unexplained, especially when the declared income is sufficient to justify such assets.

Court's interpretation and reasoning: The Tribunal noted that the assessee had declared income consistently over many years, amounting to Rs. 15,48,65,230/- from AY 2001 to AY 2018-19. The Tribunal observed that this substantial declared income is sufficient to justify possession of gold and jewellery worth Rs. 8,14,412/-. The Tribunal relied on the principle that the declared income of the assessee, particularly when falling in the higher tax bracket and accumulated over years, can be considered a valid source for the acquisition of such assets.

Key evidence and findings: The assessee's income tax returns for multiple years were submitted, demonstrating substantial aggregate income. The lower authorities, including the AO and the CIT(A), had treated the gold/jewellery as unexplained due to the absence of a direct link between the assets and the source of income. However, the CIT(A) had allowed deletion of Rs. 10 lakhs worth of gold treated as Stridhan of the assessee's wife but confirmed the addition of Rs. 8,14,412/-.

Application of law to facts: The Tribunal applied the principle that high-net-worth individuals' possession of jewellery is not necessarily unexplained if their declared income justifies such assets. The Tribunal found that the revenue failed to produce any contrary evidence challenging the declared income or disproving the source of the gold/jewellery. Therefore, the addition was not sustainable.

Treatment of competing arguments: The revenue argued that the onus was on the assessee to explain the source of investment in gold and jewellery, which was not done. The assessee conceded the lack of direct correlation but argued that the aggregate declared income was sufficient to explain the assets. The Tribunal sided with the assessee's argument, emphasizing the sufficiency of declared income and the absence of contradictory evidence from the revenue.

Conclusions: The addition of Rs. 8,14,412/- as unexplained assets was set aside. The Tribunal held that the declared income over the years justifies the possession of the disputed gold/jewellery, and the revenue failed to establish otherwise.

Issue 2: Onus of Explanation Regarding Source of Investment

Relevant legal framework and precedents: Under the Income Tax Act, once unexplained assets are detected, the onus shifts to the assessee to satisfactorily explain the source of such assets. Failure to do so results in addition to income. However, if the assessee's declared income is sufficient to cover the investment, the assets may be considered explained.

Court's interpretation and reasoning: The Tribunal acknowledged that the onus lies on the assessee but noted that the assessee had furnished returns showing substantial income over many years. The Tribunal found that aggregate income declared by the assessee was adequate to explain the investment in gold/jewellery.

Key evidence and findings: The assessee's income tax returns and the compilation of declared income over 18 years were key pieces of evidence. The revenue did not provide any evidence to contradict the declared income or prove the source was illicit or unexplained.

Application of law to facts: The Tribunal applied the principle that the onus is discharged if the declared income justifies the assets. Here, the declared income was substantial and consistent, thereby meeting the requirement.

Treatment of competing arguments: The revenue's contention that the onus was not discharged was rejected due to the absence of evidence to the contrary and the sufficiency of declared income.

Conclusions: The assessee successfully discharged the onus of explaining the source of investment in gold/jewellery.

Issue 3: Validity of Assessment under Section 143(3)

The assessee initially challenged the validity of the assessment under section 143(3) of the Act. However, the learned AR informed the Tribunal that this ground was not pressed. Consequently, the Tribunal dismissed this ground as infructuous without further examination.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"The income reported, as tabulated above, clearly shows that the assessee and her family members are high-net-worth individuals. Given their high status, holding such jewellery cannot be considered abnormal or unexplained. Paragraph 3 of the CBDT instruction also permits larger quantities of jewellery depending on the status and customs of the family. Thus, the jewellery should be considered explained."

This principle was applied analogously to the present case, establishing that substantial declared income over several years justifies possession of gold/jewellery and negates the addition of unexplained assets.

The Tribunal concluded:

"The addition made by the lower authorities is not sustainable. The revenue has not brought any contrary evidence regarding the assessee's declared income, except for the impugned investment in gold. Therefore, the value of the unexplained gold is insignificant compared to the declared income. Accordingly, we set aside the findings of the ld. CIT(A) and direct the AO to delete the addition."

The final determination was to allow the appeal of the assessee by deleting the addition of Rs. 8,14,412/- representing unexplained gold and jewellery. The ground challenging the validity of the assessment was