Facts of the Case

A search and seizure action under Section 132 of the Income-tax Act, 1961 was conducted on 19.01.2019 in the Gautam Khaitan group. The appellant, Rekha Khaitan, widow of late O.P. Khaitan and mother of Gautam Khaitan, was subjected to search at her residence and bank locker. Jewellery weighing 5,066.69 grams from the residence and 9,092.56 grams from the bank locker was found and seized.

The appellant filed her return of income for Assessment Year 2019–20 declaring income of ₹1,57,590. A notice under Section 153A was issued, followed by notices under Sections 143(2) and 142(1), calling upon the appellant to explain the source of jewellery valued at ₹7,64,46,500.

Prior to the search, the appellant had filed her Wealth Tax Return for AY 2015–16 declaring jewellery weighing 11,198.25 grams, which was the last wealth tax return before repeal of the Wealth Tax Act. Certain jewellery purchases made after filing of the Wealth Tax Return were also supported by invoices. The Assessing Officer, after considering the explanation, treated part of the jewellery as unexplained and made an addition of ₹1,14,15,054 under Section 69B read with Section 115BBE, based primarily on the DVO valuation report.

Issues Involved

Whether the addition under Section 69B for unexplained jewellery was legally sustainable without recording satisfaction of jurisdictional facts, whether CBDT Instruction No. 1916/1994 could be applied to treat jewellery as explained, and whether reliance solely on the DVO report was sufficient to sustain the addition.

Appellant’s Arguments

The appellant contended that no incriminating material was found during the search and that she was not required to maintain books of account, thereby rendering Section 69B inapplicable. It was argued that the jewellery was duly explained through Wealth Tax Returns, purchase invoices, and customary gifts accumulated over decades of marriage. The appellant further submitted that the ITAT erred in reversing the partial relief granted by the CIT(A) and failed to examine whether the mandatory conditions of Section 69B were satisfied.

Respondent’s Arguments

The Revenue submitted that substantial quantity of jewellery remained unexplained and that the CIT(A) erred in granting benefit of CBDT Instruction No. 1916 over and above jewellery disclosed in the Wealth Tax Return. It was argued that the ITAT correctly held that the instruction relates to non-seizure and not automatic explanation of jewellery for assessment purposes, and that the addition was justified based on valuation and lack of specific evidence.

Court Order / Findings

The Delhi High Court examined the impugned ITAT order and noted that while the Tribunal discussed the applicability of CBDT Instruction No. 1916 and factual aspects relating to jewellery, it failed to record any finding on satisfaction of the statutory conditions required under Section 69B of the Act.

The Court observed that mere reference to the DVO report or quantification of jewellery is not sufficient unless it is first established that the amount expended on acquisition of jewellery exceeded what was recorded or explained, as required under Section 69B. The Court further noted that the reference to Section 69A in the appellate order was a typographical error and that the real issue was non-consideration of Section 69B jurisdictional facts.

In view of the absence of such findings, the Court held that the matter required fresh consideration.

Important Clarification

The Court clarified that for sustaining an addition under Section 69B, the Assessing Officer and appellate authorities must first record satisfaction of the jurisdictional facts prescribed under the provision. Reliance on valuation reports or CBDT instructions without examining statutory conditions is insufficient in law.

Final Outcome

The appeals were disposed of. The Delhi High Court set aside the common order dated 13.06.2023 passed by the ITAT and remanded the matter back to the ITAT for fresh adjudication of both the assessee’s and the Revenue’s appeals in accordance with law, with a direction to decide the matter expeditiously considering the appellant’s senior-citizen status.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769503872_REKHAKHAITANVsDEPUTYCOMMISSIONEROFINCOMETAXCENTRALCIRCLE19DELHI.pdf

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