Facts of the Case

The assessee filed the original return declaring income of ₹22,57,860 for AY 2016-17. A search and seizure operation under Section 132 was conducted on 03.11.2016 at the premises of VVIP Group and related persons.

Subsequently, notice under Section 153A was issued and assessment was completed under Section 153A read with Section 143(3).

Two major additions were made:

  1. Addition of ₹1,33,00,000 under Section 69C
    • Based on a loose sheet (Annexure A – Page 26) allegedly indicating payment of “on-money” for purchase of a flat.
  2. Addition of ₹50,16,941 under Section 69A
    • On account of alleged unexplained jewellery found during search.

The CIT(A) confirmed the additions, after which the assessee filed appeals before the ITAT.

 

Issues Involved

  1. Whether assessment under Section 153A is valid when no incriminating material is found from the assessee during search.
  2. Whether addition for alleged “on-money” based on a loose sheet found from a third party can be sustained under Section 69C.
  3. Whether jewellery found during search can be treated as unexplained investment under Section 69A despite customary gifts and family status.

 

Petitioner’s Arguments (Assessee)

  • No incriminating material was found from the assessee during the search.
  • The alleged document relied upon by the Assessing Officer was a loose sheet found from a third person and not from the assessee.
  • The document was never confronted to the assessee during the search proceedings.
  • Therefore, the assessment should have been made under Section 153C instead of Section 153A.
  • The addition for jewellery was unjustified because:
    • Jewellery was received through family inheritance, gifts and customary occasions such as marriage and birth of child.
    • The assessee belonged to a well-placed family with substantial agricultural income.
  • Reliance was placed on judicial precedents including:
    • CIT vs Kabul Chawla (380 ITR 573, Delhi HC)
    • Ashok Chaddha vs ITO (Delhi HC)
    • Vibhu Aggarwal vs DCIT (ITAT Delhi)

 

Respondent’s Arguments (Income Tax Department)

No incriminating documents were found The department supported the orders of the Assessing Officer and CIT(A) and argued that:

  • The loose sheet found during search indicated cash payment for purchase of flat.
  • The Assessing Officer was justified in making addition for unaccounted expenditure under Section 69C.
  • During search, 2128.018 grams of jewellery was found.
  • The Assessing Officer already allowed 700 grams of jewellery as explained as per CBDT Instruction No. 1916 dated 11.05.1994.
  • The remaining jewellery was therefore correctly treated as unexplained investment under Section 69A.

 

Court Findings / Tribunal Decision

The ITAT Delhi held as follows:

1. Invalid Assessment under Section 153A

The Tribunal observed that:

  • from the assessee during the search.
  • The loose sheet relied upon by the department was recovered from another person.
  • Therefore, if any proceedings were required, they should have been initiated under Section 153C, not Section 153A.

Accordingly, the Tribunal held that:

Assessment under Section 153A without incriminating material found from the assessee is not valid in law.

The addition of ₹1,33,00,000 for alleged on-money was therefore unsustainable.

 

2. Addition on Jewellery under Section 69A Deleted

The Tribunal further held:

  • Jewellery found was 2128.018 grams, which was not excessive considering:
    • Family status
    • Customary gifts during marriage and other occasions
  • The explanation regarding inheritance, gifts and family customs was reasonable.
  • The issue was covered by the Delhi High Court judgment in Ashok Chaddha vs ITO.

Important Clarification by the Tribunal

  1. Section 153A cannot be invoked without incriminating material found during search.
  2. Documents belonging to another person require proceedings under Section 153C.
  3. Jewellery received through customary gifts, marriage and family inheritance cannot automatically be treated as unexplained.
  4. CBDT Instruction No. 1916 is only a guideline for seizure and cannot rigidly determine unexplained investment.

Link to download the order -  https://itat.gov.in/public/files/upload/1735719107-E67dYF-1-TO.pdf

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