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TMI Blog2023 (11) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 & artworks (in Rs. ) Credit in foreign bank account (in Rs. ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 undisclosed investment. 11. The AO did not agree with the same finding that: * not all items disclosed in the wealth tax returns matched in weight description with that fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewellery 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. On carefully going through the order of the Ld.CIT(A) we find that he has considered the aspect of jewellery found during search holistically, at the family level, noting certain facts relating to the same as under: 9.7 I have diligently perused the submission and the relevant Paper Book Vol-5 JWL on jewel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 noted that the assessee filed details and evidences explaining that most of the jewellery found stood disclosed in wealth tax returns. To this effect we have noted the following to be filed placed before us in paper book as under; 17. Taking note of all the above the Ld.CIT(A) held that as far as jewellery which matched in description an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry& 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 actual money invested would be much lower than the cost that would be normally charged by a jewellery showroom. In fact it is possible to come up with many more instances to explain the variation in valuation of previous gem/stone studded ornaments. 9.4 Thus I am of the considered view that jewellery& ornaments in the case of the Group should be tallied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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.2015-16 pursuant to search of gross weight 2,026.810 gms (gold weight 2,201.528 gm and diamond 82.890 Ct.) valued at Rs. 74,17,156/-in the hand of Shri Rakesh Agrawal. After a minor correction of (-) 9.200 gms (gold weight 61.189 gm less diamond 20.710 Ct.) in the case of Smt. Madhavi Agrawal, jewellery and ornaments of gross weight 1,925.60 gms comprising of gold weight 1,674.700 gm and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conclusion of the jewellery in the aforestated lockers being unexplained was based on incorrect appreciation of facts. the fact noted by him from records before him was that locker no. 907 containing majority of the jewellery of Rs. 7.5 cores was last operated on 08.02.2011 and, therefore, the contentions of the Assessing Officer that since this locker was last operated much before the date when the Regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 based on hard undisputed facts. Having said so, we agree with the Ld.CIT(A), that any basis adopted by the AO for treating such matched jewellery as unexplained is unacceptable, be it higher valuation by DVO or non operation of locker in which it was kept. 24. Be that so we agree with the reasoning of the Ld.CIT(A) for rejecting higher valuation of jewellery by DVO as basis for treating matched jewellery as unexplained. Valuation is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 substantial jewelleries, was last operated by Smt. Uma R. Agrawal on 08.02.2011. These facts find mention in the first paragraph of the bank's certificate also. The Assessing Officer, however, has noted the last date of operation of locker No. 907 as 14.11.2007, on which date also this locker was operated by Smt. Uma R. Agrawal. But, the daily attendance register also shows operation of this locker on 08.02.2011. Therefore, incorrectly noting the last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 uncontroverted before us. In effect, we uphold the 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. 30. Issue No. 2 - Addition on account of unexplained Investments in artwork 31. Brief facts relating to the issue are that, during search, 3240 items of artworks were found. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring 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 making the addition in the hands of the assessees, while learned Counsel for the assessee relied on the order of the learned CIT(A). 34. We have heard both the parties and also gone through the orders of the authorities below. The issue pertains to addition made on account of the source of investment in artworks found with the assessees remaining unexplained to the satisfaction of the Assessing Officer. The total items of artworks found from the premises of the Group being 3240 items, including paintings and sculpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 items mentioned on the bills is abnormally low in comparison to the value estimated by the valuer of that item. Few of the bills even do not have description of nature and size of art work, therefore, it cannot be proved that these payments have actually been made for the artworks, as claimed by the assessee." 36. It is not denied the assessee's explanation that certain artworks were gifted to it during workshops while others were purchased; and, the details of the items of artworks gifted along with date of conducting the workshops when they were gifted, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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:- "76.2 In context of search and jewellery and ornaments found/seized, the Department's Valuer makes the valuation on the date of search on which the price of metal gold, silver, platinum) is known and published and the price of precious stones (diamond, ruby, emerald, sapphire etc.) are also capable of reasonably comparable estimation. While the gross weight of a jewellery is accurately measurable (within the variance and sensitivity of the weighing device), the stone size etc. are estimated by the Valuer and the net weight of previous metal arrived at (after deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 beholder, it should be admitted that value of art lies in the eyes, heart and pocket of the buyer. Thus the valuation of an art cannot be possible even by the best of art experts and valuers for the purpose of unearthing undisclosed income under the Income-tax Act in case the person fails to establish the date, means and amount of acquisition of art work estimated in his possession. Thus a value of an art work by an Art Valuer is only a notional figure of its estimated worth at a given point of time, at the best. There is no correlation between the value of the art piece as per Art Appraiser and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 in the case of Shri Rakesh S. Agrawal, has been adjudicated by the ITAT in assessee's appeal for AYs 2009-10 to 2014-15 in IT(SS)A Nos. 88 to 92/Ahd/2018 vide order dated 22.04.2022 upholding the order of the ld. CIT(A) deleting the addition made under Section 68 of the Act and allowing the assessee's claim of set off of business loss brought forward from earlier years. Copy of the order placed before us. The relevant part of the order allowing set off of losses at para 28-32 and deleting addition under section 68 of the Act at para 35 are as under: "28. Having said so we find that in the facts of the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 losses cannot be considered in isolation from the profits to qualify as" fresh claim", not originally claimed in the return filed u/s 139 of the Act. 30. We may clarify that set off of these business losses from any other income originally returned, other than profits from this business, would have qualified as a fresh claim and to which the assessee would not be entitled. The proceedings u/s 153A of the Act, being in consequence to search undertaken u/s 132 of the Act, cannot be utilized by the assessee to seek relief not claimed earlier. The proceedings are analogous to proceedings u/s 147 of the Act, as being for the benefit of the Revenue and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d." 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 is no merit in the appeals of the Revenue on this count as well. 43. We shall now be dealing with each appeal before us. 44. Ground No.1 in ITA No.718/Ahd/2018, ground no.1 to 3 in ITA No.728/Ahd/2018 and the only ground raised in ITA No.720/Ahd/2018 are related to the issue of unaccounted jewellery found in the locker. These grounds raised in the respective appeals read as under: ITA No.720/Ahd/2018 "1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 1,62,12,000/- (Rs.1,01,78,340/- +Rs. 60,33,660/-) out of total addition made of Rs. 1,76,15,680/- made on account of unexplained jewellery without consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unexplained investment in painting, sculpture & Art work of Rs. 59,61,56,500/- without considering the fact that the assessee failed to prove the identity of such artists from whom the paintings were received as gift and also the assessee could not prove the genuineness of such gift. Moreover, the assessee could not submit any documentary evidences of the items of paintings/sculptures which were received as gifts. The Ld.CIT(A) has also not appreciated the departmental Art Valuer/Appraiser's report based on which the addition was made." ITA No.726/Ahd/2018 "On the facts and circumstances of the case and in law, the Ld.CIT(A) has deleting the addition made on account of unexplained investment in painting, sculpture & Art work of Rs. 18,25,000/- ..... 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