Summary: The ITAT Nagpur in Nirmal Kumar Agrawal Vs ACIT allowed the assessee’s appeal concerning jewellery found during a search under section 132. The Tribunal considered the assessee’s item-wise explanation of ownership and source, including jewellery belonging to his wife, jewellery supported by banking and balance-sheet records, gifts received from relatives, and the applicability of CBDT Instruction No. 1916 dated 11.05.1994. The Tribunal deleted the ₹3,86,186 addition sustained by the CIT(A), including additions relating to jewellery belonging to the assessee’s wife, diamond-studded jewellery and a Ring Jhumka. In considering the quantity of jewellery, the Tribunal referred to the assessee’s age, family circumstances, social status, earning capacity and prevailing family traditions and held that the remaining 48.9 grams was within the reasonable quantity contemplated by the Instruction. The Tribunal also rejected the view that diamond-studded jewellery could be excluded merely because it contained diamonds or precious stones. The order relied upon, among others, CBDT Instruction No. 1916 and decisions concerning jewellery found during search. On section 115BBE, the Tribunal held that the enhanced rate was not applicable for AY 2017-18 where the search had taken place on 26.07.2016, relying upon the decisions referred to in the supplied material. The appeal was accordingly allowed.
Core Issue: The principal issue before the Tribunal was whether jewellery found during a search could be treated as unexplained under section 69A when the assessee had furnished an item-wise explanation regarding its ownership and source, and whether the benefit of CBDT Instruction No. 1916 dated 11.05.1994 could be denied on the ground that certain jewellery was diamond/precious-stone studded. A further issue was whether the enhanced rate of tax under section 115BBE was applicable for AY 2017-18 where the search had taken place on 26.07.2016.
Facts: A search and seizure action under section 132 was conducted in the case of the D.P. Jain Group on 26.07.2016, in which the assessee was also covered. During the search, jewellery weighing 2,434 grams and valued at ₹90,58,646 was found, out of which 1,314 grams valued at ₹33,33,248 was seized. Cash of ₹7,06,060 was also found, out of which ₹5 lakh was seized. The assessee’s statement was recorded under section 132(4). The assessee, a practising Chartered Accountant and partner in SNJ & Associates, furnished an explanation regarding the jewellery. The AO, however, completed the assessment under section 143(3) determining total income at ₹57,16,270 and made an addition of ₹50 lakh under section 69A treating the same as unexplained money/undisclosed income.
CIT(A)’s Observation: On appeal, the CIT(A) granted partial relief but sustained an addition of ₹3,86,186 relating to four jewellery items. The CIT(A) held that the source of those items remained unexplained and took the view that CBDT Instruction No. 1916 dated 11.05.1994 referred to gold jewellery and not diamond-studded jewellery. The CIT(A) further observed that the Instruction contained guidelines regarding seizure of jewellery and did not constitute an explanation regarding the source of jewellery. The surviving addition comprised a Ring Jhumka valued at ₹1,07,116 and precious-stone/diamond-studded jewellery valued at ₹2,79,050.
ITAT’s Findings regarding ownership: The Tribunal found that the assessee had furnished a detailed item-wise explanation before the AO as well as the CIT(A), identifying the ownership and source of the jewellery. Of the four items in dispute, two items in Annexure JF-2, namely a pendant set with Ruby weighing 25.5 grams and a set with bracelet weighing 30.3 grams, aggregating to 55.8 grams, belonged to the assessee’s wife, Smt. Astha Agrawal. The ownership had consistently been claimed by the wife, and the jewellery was stated to have been received from her parents on the birth of her two daughters. The Tribunal held that such gifts from parents on important family occasions were normal and customary. Since the ownership was identifiable and there was no evidence found during search of any investment made by the assessee in those items, the jewellery could not be treated as unexplained in the assessee’s hands merely because it was found at the common residence. The addition of ₹2,57,615 relating to these two items was accordingly deleted.
ITAT’s Findings regarding explained jewellery: As regards the jewellery belonging to the assessee, the Tribunal noted that out of the total 121.5 grams claimed by him, jewellery weighing 72.6 grams had already been duly recorded in his individual balance sheet and had been acquired through banking channels. The payments were traceable to his IndusInd Bank account, including payments made on 23.10.2008, 27.04.2009 and 29.08.2011. The Tribunal therefore held that the acquisition and source of this jewellery stood duly explained and supported by the books and banking records. The issue before it consequently concerned only the remaining 48.9 grams.
ITAT’s Findings regarding reasonable quantity and CBDT Instruction No. 1916: In respect of the remaining 48.9 grams, the Tribunal considered the assessee’s age of 41 years, his being a married Hindu man married for 15 years, his having two daughters, his occupation as a practising Chartered Accountant, his social status, earning capacity and prevailing family traditions. It held that jewellery of 48.9 grams acquired over the assessee’s lifetime on various occasions was reasonable and not excessive. The Tribunal observed that the 100-gram limit prescribed in CBDT Instruction No. 1916 was well above the quantity in question. It therefore held that the remaining 48.9 grams fell within the reasonable limit contemplated by the Instruction.
Diamond/precious-stone jewellery: The Tribunal specifically rejected the CIT(A)’s reasoning that CBDT Instruction No. 1916 could not apply to diamond-studded jewellery. It held that, in common parlance, gold jewellery includes jewellery studded with diamonds and precious stones. Relying upon the decision of the Delhi ITAT in Kumkum Kanodia v. DCIT, the Tribunal held that merely because jewellery is studded with diamonds, it cannot be excluded from the permissible quantity where the jewellery as a whole falls within the limits prescribed by the CBDT Instruction. The Tribunal observed that adopting the contrary interpretation would lead to an absurd result because jewellery commonly contains precious stones along with gold. The addition relating to the 5-gram diamond ring valued at ₹21,435 was therefore deleted.
Ring Jhumka of 43.9 grams: The Tribunal also accepted the explanation concerning the 43.9-gram Ring Jhumka. The assessee had explained that the item had been received as a gift from relatives on various occasions. The CIT(A) had considered it unbelievable that such an ornament could be possessed by a male. The Tribunal rejected this reasoning, observing that males also wear or possess ornaments and that the nomenclature of an ornament cannot by itself determine the genuineness of its possession. Considering the assessee’s age, family background, traditions and social standing, the Tribunal held that the 43.9 grams of jewellery acquired as gifts over the course of his lifetime was reasonable and not excessive. Together with the 5 grams of diamond jewellery, the total 48.9 grams was within the limit prescribed by CBDT Instruction No. 1916.
Cases relied upon: In reaching its conclusion on jewellery, the Tribunal relied upon Ram Prakash Mahawar v. DCIT, (2020) 182 ITD 55 (Jaipur), for the proposition that jewellery independently explained through purchase bills and books should not be brought within the quantity-based benefit of CBDT Instruction No. 1916 merely to deny such benefit. It also relied upon Kumkum Kanodia v. DCIT, ITA No. 5260/Del/2014, dated 20.11.2018, in holding that diamond-studded jewellery cannot be excluded merely because of the presence of diamonds. The Tribunal further referred to Gyanendra Singh Shekhawat v. ACIT, ITA No.49/JP/2022; Ashok Chaddha v. ITO, [2011] 14 taxmann.com 57 (Delhi); Vibhu Aggarwal v. DCIT, (2018) 93 taxmann.com 275; Radha Mital and Ruchie Mital v. DCIT, ITA No.2810/Del/2016; and Sushila Devi, [2016] 76 taxmann.com 163, in support of considering age, family background, customs, social standing and gifts received over a period of time while examining jewellery found during search.
Section 115BBE: On the separate issue of section 115BBE, the Tribunal accepted the assessee’s contention that the enhanced rate of 60% was prospective. Since the search in the assessee’s case had taken place on 26.07.2016, the Tribunal held that the enhanced rate was not applicable. In doing so, it relied upon S.M.I.L.E. Microfinance Ltd. v. ACIT, [2025] 479 ITR 172 (Mad.), and the Rajasthan High Court decision in Deepak Maratha v. Union of India, Civil Writ Petition No.3625/2020, dated 29.05.2026. The Tribunal accordingly allowed Ground No. 3 as well.
Outcome: The Tribunal ultimately allowed the assessee’s appeal. The entire addition of ₹3,86,186 sustained by the CIT(A) in respect of the four jewellery items was deleted, and the assessee also succeeded on the challenge to the applicability of the enhanced rate under section 115BBE. The order records that the appeal filed by the assessee stands allowed.
Ratio : The important principle emerging from the order is that jewellery found during search cannot be treated as unexplained merely because documentary evidence is not available for every item. The AO/CIT(A) must examine identifiable ownership, explained acquisition, family circumstances, customary gifts, age, social status and the quantity of jewellery. Where jewellery belongs to another family member and such ownership is established, it cannot be assessed in the hands of the assessee merely because it was found at the common residence. Further, diamond or precious-stone-studded jewellery cannot be excluded from the benefit of CBDT Instruction No. 1916 merely because it contains diamonds or precious stones.
Cases Discussed
- Ram Prakash Mahawar Vs DCIT (ITAT Jaipur), (2020) 182 ITD 55 (Jaipur)
- Kumkum Kanodia v. DCIT, ITA No. 5260/Del/2014, dated 20.11.2018
- Gyanendra Singh Shekhawat v. ACIT, ITA No.49/JP/2022
- Ashok Chaddha v. ITO, [2011] 14 taxmann.com 57 (Delhi)
- Vibhu Aggarwal v. DCIT, (2018) 93 taxmann.com 275
- Radha Mital and Ruchie Mital v. DCIT, ITA No.2810/Del/2016
- Sushila Devi, [2016] 76 taxmann.com 163
- S.M.I.L.E. Microfinance Ltd. v. ACIT, [2025] 179 taxmann.com 65 (Mad.)
- Deepak Maratha v. Union of India, Civil Writ Petition No.3625/2020, dated 29.05.2026
