Undisclosed Jewellery & Diary Expenses: ITAT Sets Aside Additions, Holds Family Inheritance and Household Withdrawals Sufficient to Explain Sources [Read Order]

The assessee Vinay Dugar is an individual. During the AYs 2014-15, 2015-16, and 2020-21, he was engaged in the business of manufacturing and trading of Jewellery. During the year under consideration, the declared source of income of the assessee was income from business and interest.

A Search & seizure operation was carried out over the residence, business premises and lockers of the assessee as well as his other family members. The income tax return for the year under consideration was filed, declaring total income at Rs. 55,860/-. During the course of assessment proceedings, the AO raised queries regarding the Jewellery and documents found during the search, and the assessee filed a reply to that along with a copy of the documents.

The assessment was completed wherein the total income of the assessee was assessed at Rs. 50,85,334/- by making the additions of Rs. 50,29,474/-, which were on account of (i) Addition of Rs. 41,48,824/- under Section 69A of Income Tax Act, 1961 on a/c of alleged undisclosed investment in Jewellery found during the course of search, (ii) Addition of Rs. 4,84,050/- under Section 69 on account of alleged unexplained investment in construction of house and (iii) Addition of Rs. 3,96,600/- under Section 69C of the on account of alleged unexplained household expenses. Aggrieved from the order of the AO, the assessee filed the appeal before CIT(A) and being dissatisfied with that, the assessee filed the appeal before the tribunal.

The assessee contended that the jewellery was explained through family inheritance, VDIS declarations, and cultural customs and household expense notings in the seized diary were rough, maintained by the wife, and not evidence of undisclosed income.

The assessee also submitted that it was a usual practice in the house that a lump sum of money is given to the ladies of the house for household expenses, and out of that, the ladies incur day-to-day expenses. The assessee argued that apart from the assessee, there were seven other earning members in the family, whose assessments were also completed by the same AO.

The tribunal observed that it was an undisputed fact that the diary based on which the addition was made, was in the handwriting of the wife of the assessee, and in such a diary, the payment of household expenses was made.

The tribunal further observed that the assessee submitted the details of household withdrawals of the family, and such withdrawals are much more than the payments noted in such a diary.

The tribunal also observed that the assessee had not produced the documents at the time of search, but the fact remains that the existence of these documents at the time of search cannot be doubted. The VDIS certificate was issued by the Income Tax Department.

Further, the AO treated the jewellery 1334.141 gram of the value of Rs. 41,48,824/- as unexplained, whereas the assessee has explained the jewellery of more than 1334.141 gram based on documents filed before the AO.

The two-member bench of Gagan Goyal (Accountant Member) and Dr S. Seethalakshmi (Judicial Member), based on the findings, held that additions made under Income Tax Sections 69A and 69C were to be deleted and upheld the family source explanation.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates