Gold in India has had its own deep routed significance. From being known as the Golden Sparrow to the present times, the undying love of India and Indian people for gold has only become stronger and stronger. Gold is believed to be the symbol of success, wealth, prosperity and status, which proves to be a friend indeed in tough times. But only sometimes this store of value causes some trouble when the Income Tax Authorities with all the power embedded to them vide the Income Tax Act, 1961 (the Act) starts to eye one’s possession of gold and seek explanation with regards to its genuineness and source.
The Income Tax Department and officials have been conferred with the highest level of authority and power in the Act vide Section 132 of the Act. As per this section, a search and seizure action can be carried out, inter alia, in the case of any person who is in possession of any money, bullion, jewelry or other valuable article or thing and such money, bullion, jewelry or other valuable article or thing represents either wholly or partly income or property which has not been disclosed or would not be disclosed for the purpose of the Act. The said department and officials are authorized to seize the jewelry (including precious stones that forms part of jewelry) or bullion held as unexplained.
Generally, in most of the cases, gold jewelry and bullion are found and seized from residence and lockers belonging to assessee (or “searched person”). It is normal and obvious for the searched person to panic and feel frightened with the proceedings of search which includes breaking of locks and watching every possible item being practically dissected and searched rigorously. The assessee in such circumstances cannot be expected to be in the correct state of mind to explain the source at the source and without having any professional help and having no absolute knowledge about the benefits available to him under the Income Tax Laws, it becomes very difficult and problematic for the assessee to deal with the department and officials and explaining the gold jewelry and bullions amongst other things.
In this article we shall discuss some of the Reliefs available to the assessee through CBDT circulars, pronouncements of various courts and tribunals and also some considerable points while explaining the jewelry and bullions in question.
1. CBDT Instruction 1916 dated 11/05/1994 takes into account quantity of jewellery generally held by family members of a Hindu Family. CBDT through the said instruction has issued guidelines bound to be followed by the Departmental Officials, so that a common approach is followed where the search parties come across items of jewelry. In accordance with the said instruction guidance points as mentioned below, inter alia, an entitlement of gold for assessee and his family shall be calculated while giving an explanation of the jewelry/bullion found or seized.
- In the case of a 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.
- In the case of a 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.
- 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 authorising the search all the time of furnishing the search report.
For example, if Mr. X has a family of four including a son, an unmarried daughter and a wife and himself. In light with the CBDT Instruction referred above, the entitlement of his family would be 950gms (i.e. 100 gms for son, 100 gms for self, 250 gms for unmarried daughter and 500 gms for wife). The said 950 gms of gold shall be deemed as explained by the department(officials) without any further questions and doubts and shall be released, if seized. The before-said has been discussed in detail in various court and tribunal cases, some of which are mentioned hereunder on which reliance has been placed herein.
2. Pronouncements of various courts and tribunals wherein the said CBDT Instruction and interpretation there of has been discussed in detail are as under:
This circular is explained by Hon’ble Ahmedabad I.T.A.T. in case of Kishorbhai V Sakaria , Rameshchandra R Patel 89 ITD 203 and Manila! S Dave 117 Taxman 23 referred supra wherein it has been explicitly held that though board circular is a guideline for not effecting seizure during the course of search, extended meaning of same shows the intention that the jewellery to the extent mentioned in such circular should be treated as explained jewellery and gold found to that extent for family members cannot be treated as unexplained in the hand of appellant.
Similar decisions as above-mentioned were held in the cases of CIT v. Ghanshyam Das Johri [2014] 41 taxmann.com 295 (Allahabad), CIT v. Satya Narain Patni [2014] 46 taxmann.com 440 (Rajasthan) and by ITAT of Delhi in the case of CIT v. Divya Devi [2014][ ITA No. 6397/Del/2012].
It has been held in the case of Shri Ram Prakash Mahawar Vs DCIT (ITAT Jaipur)[ ITA No. 918/JP/2019] that Explained Jewellery cannot be included while giving benefit of CBDT Instruction related to Unexplained Jewellery.
Gold jewelry is highly associated with the Indian customs and festivities including marriage, child birth, Diwali etc. Also, gold jewelry is considered to be most priced possession of Indian women and it’s a fun fact that Indian housewives hold round 11% of the World’s Gold. Thus, women in India are supposed to have a good amount of gold jewelry that could have been received as Streedhan, in ancestral inheritance or under will.
As it is mentioned in clause (iii) of the said instruction that ‘Keeping in mind the high status and customary practices prevailing in one’s community various courts have held that EXCESS JEWELLERY (more than the prescribed limit as per clause (ii) of Board’s Instruction) found during the course of search will not be considered as unexplained’. It has been held that married ladies receiving jewellery in the form of ‘stree dhan’ during her long married life on various occasion like birth of child, birthdays, marriage anniversaries, etc., and accumulated over a period of years are to be exclude.
Delhi High court in the case of Ashok Chaddha [2011] 14 taxmann.com 57 wherein the Hon’ble High Court has accepted the jewellery of 906.60 grams in the case of married lady even without documentary evidence. The court stated that collecting jewellery of 906.900 grams by a woman in a married life of 25-30 years is not abnormal. The court has held that it is a normal custom for woman to receive jewellery in the form of “stree dhan” or on other occasions such as birth of a child etc.
Hon’ble Delhi High Court following the decision of Ashok Chaddha (supra) in the case of Sushila Devi [2016] 76 taxmann.com 163 has held that the gold jewellery which is acquired through gifts made by relatives and other family members over a long period of time, is in keeping with prevailing customs and habits.
3. Judicial pronouncements of Courts and Tribunals with respect to Other matters:
In the case of Kumkum Kanodia vs DCIT vide ITA No. 5260/Del/2014 dated 20.11.2018 it was held that Gross weight of jewelry including gold as well as diamonds and other precious stones, should not be seized, if they do not weigh by more than the prescribed limit as per the above stated Instruction.
In the case of Nawaz Singhania Vs. DCIT Central Circle 8(1), Mumbai the issue of mismatch in jewelry declared and found was discussed and it was held that a necessary concomitant is remaking of the jewellery; for repetition of the same items in any Indian society, including that of assessee, is bound to be looked down upon. Another necessary corollary is the spate of gifts that are received and, frequently, these are ornaments and jewellery, often high value items.
In the case of Sunita Gupta vs DCIT vide ITA No. 5295/Del/2013 dated 17/03/2016, the Hon’ble Delhi ITAT, the tribunal in para 12 of its order stated that:
“12. The aforesaid explanation of the assessee appears to be plausible because in the society to which the assessee belongs the jewelry got remade with the passage of time and in accordance with the change in fashion/occasion.”
It was also held by Hon’ble ITAT Delhi, in the case of Smt. Shalini Chawla vs ACIT (ITA No. 8004/del./2019) dated 27.08.2020 that changes in shape or size are immaterial.
4. Whether Diamond Jewellery or Gold Bar (Bullion) found during the course of search can be included within the prescribed limit as stipulated in Board’s Instruction?– No.
The prescribed limit in the Clause (ii) of CBDT Instruction No. 1916 dated 11th May, 1994, specifically deals with the gold jewellery and ornaments. Therefore, benefit of instruction is not available in respect of diamond studded in the gold jewellery or diamond jewellery. Similarly, benefit of instruction is also not available in respect of Gold Bar (Bullion) or gold coins found during the course of search. However, if it is substantiated that such gold bar or coin were made by melting old jewellery and source of such jewellery is explained along with the remaking bill then it will be considered as explained.
However the dispute may arise as to whether the diamond studded in the gold jewellery will be covered as per the CBDT Instruction No. 1916 dated 11th May, 1994. It can be argued that the gold jewellery found from the persons searched if covered within the permissible limits prescribed as per CBDT Instruction No.1916 than the diamond studded in such gold jewellery will be given benefit on the ground that such diamond jewellery is equated with the gold jewellery. The diamond jewellery included in the gross weight of the jewellery found from the persons seared if covered within the limit prescribed by above circular than no adverse view should be taken against Assessee. e Delhi ITAT in case of Kumkum Kanodia Versus DCIT vide ITA No: 5260/Del/2014 dated 20/11/2018 observed that merely because the jewellery is studded with the diamond of 47.18 carat in the instant case, the same cannot be added in the hands of the assessee when such jewellery formed part of the gross weight of the jewellery found from the premises of the assessee which is within the permissible limits prescribed as per CBDT Instruction No.1916 dated 11th April, 1994.
Indore ITAT in case of SHRI DINKAR LAXMAN MUJUMDAR Vs. DCIT in ITA No: 593/Ind/2017 dated 18/10/2018 has allowed benefit of above circular to the silver article found during the course of search considering the customs of the Indian culture .
5. Further, the jewelry/bullion found or seized can only be taxed in the year in which the said article is found in possession of assessee as per section 69A of the Act.
6. Also, an application in view of the proviso to section 132B(1) of the Act, can be made within thirty days from the end of the month in which the asset was seized, wherein the assessee has to explain the nature and source of jewellery and other valuables found during the course of search to the satisfaction of the Assessing Officer.
7. Conclusion
Thus, the above-mentioned CBDT instruction and pronouncements are noteworthy while dealing with the Income Tax Officers. Although it is also advised to take proper professional guidance before referring to anything and proceeding further.
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