ACIT CEN CIR 22, MUMBAI V. SHREYAS S. MORAKHIA, MUMBAI

ITA 4960/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6314 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 01-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 31-08-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Unexplained investment; Gift; Search and seizure; Valuation report
• Section: 69; 132

Judgement Text

1 ITA 4960/M/09, SHRI SHREYAS S. MORAKHIA. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I BEFORE SHRI D. MANMOHAN, V.P. AND SHRI P.M. JAGTAP, A.M. ITA NO. 4960/MUM/09 ASSESSMENT YEAR 2004-05 A.C.I.T. CENT. CIR. 22, AAYAKAR BHAWAN, 4 TH FLOOR, ROOM NO. 403, M.K. ROAD, MUMBAI 20. VS. SHRI SHREYAS S. MORAKHIA, 803/804 TULSIANI CHAMBERS, NARIMAN POINT, MUMBAI. 21 PAN AACPM 9855F APPELLANT RESPONDENT APPELLANT BY SHRI S.K. SINGH RESPONDENT BY SHRI HIRO RAI ORDER PER P.M. JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LD. CIT(A) IV, MUMBAI DATED 30.6.09 AND IN THE SOLITARY SUBSTANTIV E GROUND RAISED THEREIN, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(A) IN DELE TING THE ADDITION OF ` 8,79,269/- MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED INVESTMENT AL LEGEDLY MADE BY THE ASSESSEE IN DIAMOND JEWELLERY. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIV IDUAL WHO IS MAINLY ENGAGED IN THE BUSINESS OF SHARE TRADING. HIS RESIDENCE WAS SEARC HED ON 1.8.03 AS A PART OF SEARCH AND SEIZURE ACTION CONDUCTED U/S 132 IN THE CASES BELON GING TO SSKI GROUP. THREE BANK LOCKERS STANDING IN THE NAME OF ASSESSEE AND HIS WI FE SMT. LARA MORAKHIA WERE ALSO COVERED UNDER SEARCH. DURING THE COURSE OF SEARCH, GOLD JEWELLERY AND DIAMOND JEWELLERY WORTH ` 36,80,111/- AND ` 76,48,776/- RESPECTIVELY WERE FOUND FROM THE RESIDE NCE OF THE ASSESSEE AS WELL AS BANK LOCKERS. DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE 2 ITA 4960/M/09, SHRI SHREYAS S. MORAKHIA. ASSESSEE SOUGHT TO EXPLAIN THE SAID JEWELLERY WITH THE SUPPORT OF VALUATION REPORTS DTD. 31.3.94 FILED ALONG WITH HIS WEALTH TAX RETURN AND VALUATION REPORT ENCLOSED WITH THE VDIS DECLARATION FILED IN THE CASE OF HIS WIFE. HE ALSO PRODUCED BILLS FOR PURCHASE AND MAKING OF THE SAID JEWELLERY. ON VERIFICATION OF T HESE DOCUMENTS, IT WAS NOTED BY THE A.O. THAT SOME ITEMS OF DIAMOND JEWELLERY WORTH ` 8,79,269/- WERE NOT REFLECTED IN THE VALUATION REPORT AND OTHER DOCUMENTS FURNISHED BY T HE ASSESSEE. WHEN THIS ASPECT WAS CONFRONTED BY THE A.O. TO THE ASSESSEE, THE LATER T RIED TO EXPLAIN THE SAID ITEMS OF DIAMOND JEWELLERY WITH THE SUPPORT OF ENTRIES IN THE VALUAT ION REPORTS, CERTAIN PURCHASE BILLS AND GIFTS FROM UNKNOWN SOURCES. THIS EXPLANATION RELATI NG GIFTS FROM UNKNOWN SOURCES, HOWEVER, COULD NOT BE SUBSTANTIATED BY THE ASSESSEE . THE A.O. ALSO FOUND THAT DESCRIPTION OF DIAMOND JEWELLERY SUCH AS DESIGN, WE IGHT AND CARATAGE OF DIAMONDS ETC. WAS NOT MATCHING WITH THE JEWELLERY REFLECTED IN TH E VALUATION REPORT FURNISHED BY THE ASSESSEE. HE THEREFORE TREATED THE DIAMOND JEWELLE RY WORTH ` 8,79,269/- AS UNEXPLAINED INVESTMENT OF THE ASSESSEE AND THE SAID AMOUNT WAS ADDED BY HIM TO THE TOTAL INCOME OF THE ASSESSEE U/S 69 IN THE ASSESSMENT COMPLETED VI DE ORDER DATED 27.3.06 PASSED U/S 143(3). 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143( 3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) AND THE SUBMISSIONS MADE BEFORE THE A.O. WERE REITERATED ON HIS BEHALF BEFORE THE LD. CIT(A) IN AN ATTEMPT TO EXPLAIN THE DIAMOND JEWELLERY WORTH ` 8,79,269/-. A STATEMENT WAS ALSO PREPARED AND FUR NISHED BY THE ASSESSEE BEFORE THE LD. CIT(A) RECONCILING THE SAID JEWELLERY WITH THE ENTR IES IN THE SUPPORTING DOCUMENTS FILED IN THE FORM OF VALUATION REPORT ETC. IT WAS SUBMIT TED THAT THE DIFFERENCE IN DESCRIPTION OF JEWELLERY WAS DUE TO SOME CHANGES IN THE DESIGN AS WELL AS RESHUFFLING/MODIFICATION OF THE ARTICLES. IT WAS URGED ON BEHALF OF THE ASSESS EE THAT A TELESCOPIC VIEW NEEDS TO BE TAKEN IN THE MATTER TO APPRECIATE THE EXPLANATION O FFERED AS REGARDS THE DIAMOND JEWELLERY. THE SUBMISSION MADE ON BEHALF OF THE ASS ESSEE WAS FOUND ACCEPTABLE BY THE LD. CIT(A) AND HE DELETED THE ADDITION OF ` 8,79,269/- MADE BY THE A.O. ON ACCOUNT OF 3 ITA 4960/M/09, SHRI SHREYAS S. MORAKHIA. UNEXPLAINED INVESTMENT MADE BY THE ASSESSEE IN DIAM OND JEWELLERY FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 15 OF HIS IMPUGNED ORDER: I HAVE CONSIDERED THE ABOVE EXPLANATION OF THE LD. AR AND THE JEWELLERY RECONCILIATION FILED AND ALSO CAREFULLY PERUSED THE ORDER OF THE ASSESSING OFFICER. THE DISPUTE IS RELATING TO THE JEWELLERIES WORTH ` 8,79,269/- OUT OF THE TOTAL JEWELLERY FOUND OF ` 1,16,38,047/-. IT IS SEEN FROM THE EXPLANATION OF THE APPELLANT THAT THE DIFFERENCE IS MAINLY ON ACCOUNT OF THE CHANGES MADE IN THE DESIGN OR RESHUFFLING/MODIFICATION OR EXCHANGE OF THE DECLARE D JEWELLERY AGAINST THE JEWELLERY FOUND DURING THE SEARCH AND SEIZURE. IN MY VIEW TH E APPELLANT WAS ENTITLED TO BENEFIT OF WEIGHT OF JEWELLERY DISCLOSED IN THE RET URNS AS IT IS A WELL KNOWN FACT THAT INDIAN LADIES KEEP CHANGING DESIGNS OF JEWELLERY FR OM TIME TO TIME. KEEPING IN MIND THE DETAILED EXPLANATION GIVEN BY THE APPELLAN T, I AM INCLINED TO TREAT THE ENTIRE JEWELLERYT FOUND WITH THE APPELLANT AS FULLY EXPLAI NED. THE ADDITION MADE IN THE HANDS OF THE APPELLANT FOR UNDISCLOSED INCOME, IS U NJUSTIFIED AND IS DIRECTED TO BE DELETED. THE APPELLANT GETS RELIEF. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVEN UE HAS PREFERRED THIS APPEAL BEFORE THE LD. CIT(A). 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT OUT OF THE TOTAL JE WELLERY FOUND DURING THE COURSE OF SEARCH, CERTAIN ITEMS OF DIAMOND JEWELLERY WERE FOUND TO BE NOT REFLECTED IN THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE IN SUPPORT OF HIS EX PLANATION. THE SAID ITEMS WERE SPECIFICALLY POINTED OUT BY THE A.O. TO THE ASSESSE E AND THE EXPLANATION SOUGHT TO BE OFFERED BY THE ASSESSEE REGARDING THE SAME WAS NOT ACCEPTABLE BY THE A.O. FOR THE SPECIFIC REASONS GIVEN IN THE ASSESSMENT ORDER. FOR INSTANCE, THE EXPLANATION OF THE ASSESSEE AS REGARDS SOME OF THESE ITEMS HAVING RECE IVED AS GIFTS FROM UNKNOWN SOURCES WAS NOT ACCEPTED BY THE A.O. FOR THE FAILURE OF THE ASSESSEE TO SUBSTANTIATE THE SAME. THE A.O. ALSO FOUND THAT THE DESCRIPTION OF THESE ITEMS OF DIAMOND JEWELLERY DID NOT MATCH WITH THE JEWELLERY REFLECTED IN THE DOCUMENTARY EVI DENCE FURNISHED BY THE ASSESSEE IN THE FORM OF VALUATION REPORT, PURCHASE BILLS ETC. BEFOR E THE LD. CIT(A), THE ASSESSEE PREPARED AND FURNISHED A STATEMENT RECONCILING THESE ITEMS O F JEWELLERY WITH SOME OF THE ITEMS OF JEWELLERY REFLECTED IN THE VALUATION REPORT IN AN A TTEMPT TO SHOW THAT THE ITEMS OF DIAMOND JEWELLERY POINTED OUT BY THE A.O. WERE NOTHING BUT THE RE-DESIGNED AND MODIFIED ITEMS 4 ITA 4960/M/09, SHRI SHREYAS S. MORAKHIA. MADE OUT OF JEWELLERY ALREADY REFLECTED IN THE VALU ATION REPORT. A COPY OF THE SAID RECONCILIATION STATEMENT IS PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT GOING BY THE D ESCRIPTION OF THE ITEMS OF JEWELLERY GIVEN THEREIN SUCH AS WEIGHT AND CARAT OF DIAMOND, IT IS DIFFICULT TO ACCEPT THE EXPLANATION OF THE ASSESSEE THAT ALL THE ITEMS OF DIAMOND JEWEL LERY POINTED OUT BY THE A.O. WERE MADE OUT OF CORRESPONDING ITEMS OF JEWELLERY ALREADY AVA ILABLE WITH THE ASSESSEE AS REFLECTED IN THE VALUATION REPORT. NO DOUBT, THE HOLISTIC VIEW OF THE MATTER NEEDS TO BE TAKEN TO GIVE BENEFIT OF TELESCOPING TO THE ASSESSEE TAKING INTO CONSIDERATION THAT SOME OF THE ITEMS OF JEWELLERY REFLECTED IN THE VALUATION REPORT WERE NO T FOUND DURING THE COURSE OF SEARCH. HOWEVER, KEEPING IN VIEW THE DIFFERENCE IN THE DESC RIPTION OF ITEMS OF DIAMOND JEWELLERY AS FOUND DURING THE COURSE OF SEARCH AND AS REFLECT ED IN THE VALUATION REPORTS AND THE ASSESSEES FAILURE TO OFFER SATISFACTORY EXPLANATIO N IN THE MATTER, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE EN TIRE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED JEWELLERY BY GIVING THE BENE FIT OF TELESCOPING TO THE ASSESSEE. IN OUR OPINION, IT WOULD BE FAIR AND REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE TO ALLOW SUCH BENEFIT ON AN ESTIMATED BASIS TO THE EXT ENT OF 50% OF THE JEWELLERY FOUND DURING THE COURSE OF SEARCH FOR WHICH THE ASSESSEE COULD NOT OFFER ANY SPECIFIC EXPLANATION. ACCORDINGLY, WE MODIFY THE IMPUGNED O RDER OF THE LD. CIT(A) AND SUSTAIN THE ADDITION MADE BY THE A.O. ON THIS ISSUE TO THE EXTENT OF ` 4,39,635/-. 5. IN THE RESULT, APPEAL OF THE REVENUE IS PARTL Y ALLOWED. ORDER PRONOUNCED ON 24 TH NOVEMBER, 2010. SD/- SD/- (D. MANMOHAN) (P.M. JAGTAP) VICE PRESIDENT ACCOUN TANT MEMBER MUMBAI, DATED 24 TH NOVEMBER , 2010. RK 5 ITA 4960/M/09, SHRI SHREYAS S. MORAKHIA. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV- MUMBAI 4. THE CIT- CENTRAL -II MUMBAI 5. THE DR BENCH, I 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 6 ITA 4960/M/09, SHRI SHREYAS S. MORAKHIA. DATE INITIALS 1. DRAFT DICTATED 2.11.10, 16.11.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 4.11.10, 16.11.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.