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in

ORDER

PER MANISH BORAD, AM.

This appeal filed by the Assessee is directed against the order

of ld. Commissioner of Income-tax (Appeals)-31, New Delhi
Camp, Bhopal [in short referred to as the CIT (A)] dated
30.06.2016 arising out of the order u/s 143(3) of the Income
Tax Act dated 25.03.2013 framed by the Income Assistant
Commissioner of Income Tax- 1(2), Bhopal pertaining to
Assessment Year 2011- 12.

2. Briefly stated facts as culled out from the records are that
the assessee is an individual and derives income from salary,
income from other sources and agriculture income. He is
Director of Lilasons Industries Limited, Aurangabad. Return
of income for the Assessment Year 2011-12 was filed on
29.07.2011 showing total income of Rs. 11,89,296/-. A
search u/s 132 of IT Act, 1961 was conducted at his
residential premises as well as on the premises of his other
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concerns/business associates. Notices u/s 153A of the Act

dated 31.12.2012 was issued to the appellant for reopening
the case u/s 147 of the Act. Against the said notice the
appellant filed the return showing the same income of Rs.
11,89,296/- and agriculture income of Rs. 3,02,432/-. The
assessment was completed at the income of Rs. 34,54,921/-
and agriculture income of Rs. 3,02,432/- by making addition
of Rs. 22,65,625/- against ornaments and jewellery found
during the course of search.

3. Aggrieved by this, the assessee preferred an appeal before

the Ld.CIT(A) but could not succeed.

4. Now the assessee is in appeal before the Tribunal pressing

following grounds of appeal.

1. That on the facts and in the circumstances of the case the

Ld. CIT(A) erred in confirming the action of Assessing Officer
by reopening the case u/s 147 though under the facts and
circumstances of the case, the reopening is unjustified,
unwarranted and bad in law.

2. That on the facts and in the circumstances of the case the

Ld. CIT(A) erred in confirming the addition of Rs. 22,65,625/-
for ornaments, jewellery and silver found during the course
of search without considering the explanation offered by the
assessee and without considering the fact that the entire
jewellery found belongs to the wife and mother of the
appellant and the necessary evidences were filed for the
same.

3. That on the facts and in the circumstances of the case the

Ld. CIT(A) erred in not considering the fact that the entire
jewellery belongs to the family members including wife and
mother and the same is within the permissible limit which an
Indian lady can possess as their stridhan and hence due
credit should be given for the same".

5. First we take up Ground No. 1 wherein assessee has

challenged the validity of reopening of case u/s 147 of the
Act.
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6. The Ld. Counsel for assessee referring to the submissions

made before the lower authorities submitted that the
reassessment proceedings u/s 147 r.w.s 143 are bad in law
and liable to be quashed.

7. On the other hand the Ld. Departmental representative

supported the order of lower authorities.

8. We have heard the rival contentions and perused the

records placed before us. In this ground the assessee has
challenged the proceedings of reopening u/s 147 of the Act.
We observe that in the instant appeal search u/s 132 of Act
was conducted at the residential premises of the assessee
who is the Director of Lilason Search was also conducted of
the total group i.e. business concerns, sister concerns,
various Directors and persons related to these concerns.
During the course of search jewellery valuing Rs.
22,65,625/- was found and the assessee was unable to
correlate the source of the total jewellery found during the
income tax raid.

9. We therefore in the given circumstances of the case as well

as respectfully following the judgments referred by Ld. CIT(A)
find no reason to interfere in the findings of Ld. CIT(A)
holding the assessment proceedings u/s 147 of the Act as
valid, by observing as follows;

"4.2 I have considered the findings recorded by the Ld. AO as

per the assessment order, the submission filed by the
appellant and the facts of the case on record. Section 147 of
the Act enables the AO to reopen an assessment after expiry
of four years, if the AO has 'reason to believe' that by reason
of omission or failure on the part of the assessee to disclose
fully and truly all material facts necessary for his
assessment, an income asses sable to tax has escaped
assessment. Explanation 1 to proviso of section 147 further
clarifies that production before the AO of books of accounts
and other evidence does not exonerate the assessee from the
duty to made full and true disclosure of material fact, if some
material necessary for assessment lay embedded in books of
accounts or other evidence which the AO could have
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uncovered with due diligence but did not. Then, production of

account books or other evidence will not tantamount to full
and true disclosure of material facts. For the sake of
convenience, Explanation 1 below proviso to section 147 is
reproduced as under:

"Explanation 1 - Production before the Assessing Officer of

account books or other evidence from which material
evidence could with due diligence have been discovered by
the Assessing Officer will not necessarily amount to
disclosure within the meaning of the foregoing proviso".

4.3 It is well settled principle of law that AO should have

material on the basis of which he could form a bonafide
belief that the income as asses sable to tax has escaped
assessment for the relevant assessment year. It is necessary
to refer to some of the relevant decisions of Hon'ble Court and
High Courts in regard to the meaning of the word 'reasons to
believe' for the purpose of reopening of assessment as
mentioned below:

(i) HA Hanji & Co vs. ITO (1979) 120 ITR 593

(ii) Sheo Singh vs. AAC (1971) 82 ITR

(iii) Sri Krishna (P) Ltd vs. ITO (1966)221 ITR 538

(iv) Raymond Woollen Mills Ltd. vs. ITO (1999)236 ITR 34

(SC)

(v) S. Narayanappa vs. CIT (1967) 63 ITR 219 at page 222

(SC)

(vi) Ganga Saran & Sons (P) Ltd vs. ITO (1981) 130 ITR 1 at
page 11

(vii) Phool Chand Bajranglal vs. ITO (1993)203 ITR 456 at

477

4.3.1 Hon'ble Supreme Court in the case of Kalyanji Mavji

and Co.v Commissioner of Income-tax (102 ITR 287) has
held that the reassessment was valid in law in as much as the
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Assessing Officer proceeded on the basis of information which

came to him after the original assessment by fresh facts
revealed in the assessment proceedings for another year. It
was further held that the word "information" in section 34(1)(b)
is of the widest amplitude and comprehends a variety of
factors. Information may come from external sources or even
from the materials already on record or may be derived from
the discovery of new and important matter or fresh facts.

4.3.2 In the case of Syal Leasing Ltd. v. Assistant

Commissioner of Income-tax (266) ITR 639), the Hon'ble
Punjab and Haryana High Court has held that in view of the
findings recorded by the Assessing Officer in the case of the
assessee for a subsequent assessment year, the Assessing
Officer had sufficient reason to believe to issue a notice under
section 148 of the Act for an earlier assessment year.

4.3.3 Hon'ble Madras High Court in the case of

Virudhunagar Co- operative Milk Supply Society Ltd v.
Commissioner of Income-tax (183 ITR 545) has held that
facts discovered during the assessment proceedings of a
subsequent year would constitute "information" within the
meaning of section 147(b) of the Income-tax Act, 1961, and
reassessment proceedings based on such information is valid.
4.3.4 It has been widely held by various courts including the
Hon'ble Apex Court that the reopening of assessment is valid
on the basis of decision which subsequently comes to the
knowledge of the AO. A mention may be made of the following
cases:

- Sarabhai M Lakhani 243 ITR 1 (SC); and

- ALA Firm 189 ITR 285 (SC).

4.3.5 Further reliance in this regard is placed on the decisions

in the cases of ITO v Selected Dalurband Coal Co. P. Ltd (1996)
217 ITR 597 (SC) and Raymond Woollen Mills Ltd. v ITO (1999)
236 ITR 34 (SC) where the ratio laid down is clearly applicable
on the case under consideration.

4.4 The legal principles that merge from the aforementioned

decisions may be summarized as under:-
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- That for valid reopening of assessment after four years, the

AO should have reason to believe that the income of the
assessee has escaped assessment by reason of omission or
failure on the part of the assessee to disclose fully and truly all
material facts necessary for assessment. It is a condition
precedent for assumption of jurisdiction under 147(1).

- The condition that the AO has reason to believe that the

income of the assessee had escaped assessment is question of
jurisdiction can always be investigated by Court. The word
'has reason to believe' in section 147 are stronger than the
words 'is satisfied'. The belief entertained by the AO must not
be arbitrary or irrational. ~t must be reasonable or in other
words, it must be based on reasons which are relevant and
material.

- The belief of the Officer should not be a product of

imagination or There must be reason to induce the belief. The
belief must be of an honest and reasonable person based upon
reasonable grounds.

- The Officer may act on direct or circumstantial evidence, but

his belief must not be based on mere suspicion, gossip or
rumor.

- The belief that is required for reopening of assessment is that

of the AO. The sufficiency of reasons for the belief cannot be
investigated by the Court.

- At the time of issuing of reassessment notice, it is not

necessary for the AO to come to a conclusive finding that the
income escaped Such belief obviously at that stage is a
tentative belief on the material before him to be examined and
scrutinized on such evidence as may be available in the
proceedings for reassessment. But there must be some ground
for reasonable belief that there had been a non-disclosure etc.
of material facts resulting in escapement of income.

- For determining whether initiation of reassessment

proceeding was valid, it is only to be seen whether there was
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prima facie some material on the basis of which the

Department could reopen the case.

The sufficiency or the correctness of the material is not a thing

to be considered at this stage. Since the belief is that of the AO,
the sufficiency of the reasons of forming the belief is not for the
Court to judge.

4.5 The question before me is that as to whether on the basis

of facts of this case, the AO had reason to believe that income
had escaped assessment or not. I have referred to various
decisions of Hon'ble Supreme Court wherein it has been
specifically laid down that power to reopen an assessment by
the AO is subject to condition that he has reason to believe that
income has escaped assessment. It is also established from
judicial principles laid down by Hon'ble Apex Court that
formation of belief need not necessarily result into
reassessment. A material sufficient for formation of belief need
not be sufficient for making assessment or reassessment.
Taking the totality of the facts and circumstances of this case
into consideration and in light of the legal principle laid down
by Hon'ble Supreme Court referred to earlier in this order, I am
of the considered view that AO has not committed any error in
facts and in law while issuing the notice u/s 148 and was
justified informing a belief that the income of the appellant had
escaped assessment for the assessment year under
consideration. In the case of ITO vs. Biju Patnaik (1991) 188
ITR 247, the Apex Court has sounded the note of caution that
at the stage of notice under section 147/148 of the Act, the
Court is not to go into the merits of the controversy whether a
particular income is taxable. Taking, the totality of the facts
and circumstances of this case into consideration, I uphold the
reopening of assessment u/s 148. Therefore, the ground No. 1
of the appeal is dismissed".

10. In the result Ground No. 1 of the assessee is dismissed.

11. Ground No. 2 and 3 relates to the addition of Rs.

22,65,625/- for gold ornaments, diamond jewellery and silver
found during the course of search. These included 614.25
(net weight) of gold jewellery, diamond jewellery of 30 carrats
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and 3 carrots and silver ornaments weighing 2000 grams (net

weight).

12. The Ld. Counsel for the assessee submitted that both the
lower authorities failed to appreciate that out of total
jewellery 350 grams of gold jewellery were received through
"WILL" from assessee's mother in law in the year 1993 and as
a token of evidence copy of balance sheet reflecting the said
gift are enclosed and were also submitted before the search
party. Further, part of the jewellery was purchased by the
assessee's wife Smt. Manileela amounting to Rs. 2,16,000/-.
Assessee's mother was also staying with him and the seized
jewellery also included some portion of the jewellery owned
by her. Reference was also made to CBDT instruction No.
1916 dated 11.5.94 as per which jewellery up to the weight of
500 grams and 100 grams are treated as explained in the
case of a married women and a male member. The Ld.
Counsel accordingly prayed that no addition whatsoever
should have been made for the jewellery as the source has
been explained as well as looking to the living standard of the
assessee some portion of the jewellery should have been
accepted by the Assessing Officer.

13. On the other hand Ld. Departmental representative

supported the orders of lower authority.

14. We have heard the rival contentions and perused the

records placed before us. The issue raised in Ground No. 2
and 3 related to addition of Rs. 22,65,625/- confirmed by the
Ld.A.O on account of ornament, jewellery and silver found
during the course of search. Before adjudicating the facts of
the case we will first like to mention about the CBDT
instruction No. 1916 dated 11.5.1994 wherein the Central
Board of Direct Taxes issued certain guidelines in the matter
of seizure of jewellery held by the people which reads as
follows;

"Instances of seizure of jewellery of small quantity in the case

of operation under section 132 have come to the notice of the
Board. The question of a common approach to situation where
search parties come across items of jewellery has been
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examined by the Board and following guidelines are issued for

strict compliance.

(i) In the case of wealth-tax assessee, gold jewellery and

ornaments found in excess of the gross weight declared in the
wealth-tax return only need to be seized.

(ii) In the case of person not assessed to wealth-tax gold

jewellery and ornaments to the extent of 500 gms. per married
lady 250 gms per unmarried lady and 100 gms per male
member of the family, need not be seized.

(iii) The authorized officer may having regard to the status of

the family and the customs and practices of the community to
which the family belongs and other circumstances of the case,
decide to exclude a larger quantity of jewellery and ornaments
from seizure. This should be reported to the Director of
Income-tax/Commissioner authorizing the search all the time
of furnishing the search report.

(iv) In all cases, a detailed inventory of the jewellery and

ornaments found must be prepared to be used for assessment
purposes."

15. From the perusal of the above mentioned CBDT

instructions which in our view provides a guideline to the
search conducting team that no seizure should be made of
the jewellery and ornaments found during the course of
search proceedings u/s 132 of the Act, if the same have been
duly declared in the wealth tax returns filed by the tax payer
or where such ornaments are within the prescribed limits of
500, 250 or 100 grams as stated in the said
16. Now turning towards the facts of the present appeal we
find that out of total seized jewellery of Rs. 22,65,625/- (being
the value of seized jewellery as on the date of search), we find
that the assessee has been successful enough to explain the
jewellery worth Rs. 17,59,500/- on account of following;

(i) Diamond jewellery belonging to assessee's wife purchased

in 1993 for Rs. 2,16,000/- (duly shown in the balance sheet)
which values at Rs. 10,77,000/- as on date of search.
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(ii) secondly the Gold jewellery weighing around 350 grams

which the assessee received as per will of her grand mother in
1993 which is also shown in the balance sheet at a cost of Rs.
1,60,930/-.

17. As regards the remaining unexplained amount of

jewellery worth Rs. 5,06,000/- the Ld. Counsel has given
general submission that they belongs to the wife of the
assessee which is a part of streedhan. We find that CBDT
instruction No. 1916 provides relief to the assessee if he is
wealth tax assessee and has declared the gold jewellery
ornaments in the wealth tax report and in other cases the
limit of gold ornaments weighing 500 grams to the per
married lady, 250 grams for unmarried lady and 100 grams
per male member is provided. The instructions are just
guidelines and the search party are at the discretion to decide
it from case to case.

18. We have already accepted that the jewellery worth Rs.

17,59,500/- was purchased in the earlier years as well as
some part received by "WILL". However, as regards the
remaining gold jewellery, silver items and diamond jewellery
valuing Rs. 5,06,000/- there is no specific reply given by the
assessee. We therefore, looking to the fact that assessee was
living with his mother and wife and also in view of CBDT
Instruction No. 1916 dated 11.5.94 discussed above sustain
a total addition of Rs. 2,50,000/- for unexplained jewellery.
Accordingly the appeal of the assessee is partly allowed.

19. In the result, the appeal of the assessee is partly allowed.

The order pronounced in the open Court on 19.01.2018.

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