Addition of gold jewellery not sustained in absence of expert valuer’s report

Sudha Aggarwal Vs DCIT (ITAT Chandigarh)

Enhancing the quantity of gold by the weight of stones and diamonds is not logical. It was neither valued nor any Expert Valuer’s report was available on record. Addition unsustainable.

Facts-

A search & seizure operation u/s 132(1) was carried out on the business and residential premises of M/s S.K. Jewellers Group of Cases which included the assessee who is shown to be the proprietor of M/s S.K. Jewellers. The subject matter of dispute pertains to the jewellery found at the residence of the assessee. AO held that considering the Indian customs and traditions, jewellery to the extent of 800 grams was being allowed. The remaining was held to be unexplained and the addition of Rs.11,84,000 was made u/s 69A of the Income Tax Act.

Being aggrieved, the assessee preferred an appeal before CIT(A). CIT(A) uphold the addition. Being aggrieved, the assessee preferred appeal before Tribunal.

Conclusion-

Held that there was no logic in enhancing the quantity of gold by the weight of stones and diamonds. It was seen that there were no loose stones/diamonds found during the search but jewellery studded with stones/diamonds, which were neither valued nor any Expert Valuer’s report was available on record. Such an action cannot be supported. We have seen that even if it is considered even then alongwith the gold reflected in the books of accounts of the assessee and the explanation on record that credit for the jewellery held by late father and mother-in-law is also considered. Therefore, the additions cannot be sustained.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

The present appeal has been filed by the assessee wherein the correctness of the order dated 30.07.2021 of CIT(A)-3, Gurgaon is assailed on the following grounds :

“1. That learned CIT A has erred on facts and in law in confirming the addition of Rs. 11,84,000/- u/s 69A on account of unexplained jewellery.

2. That learned CITA has erred in law and facts in confirming the action of AO by not allowing the benefit of gold jewellery inherited from mother in law and father in law of assesse and also joint holder of locker.

3. That learned CITA has erred in law and facts in confirming the action of AO by not allowing the credit of gold jewellery of 538.33gms as per books of accounts of Sanjay Aggarwal prop. M/s S.K. Jewellers.

4. That the learned CIT A has erred in law and facts in confirming the action of AO by assessing the amount of jewellery as income u/s 115BBE.

5. Appellant craves leave to add, alter, amend or to substitute the above grounds of appeal either before or at the time of hearing of case.”

2. Before addressing the arguments advanced on behalf of the assessee which are more or less reiteration of facts as argued before the AO as well as the CIT(A), it is appropriate to address the facts on record. A search & seizure operation u/s 132(1) of the Income Tax Act, 1961 was carried out on 21.03.2017 on the business and residential premises of M/s S.K. Jewellers Group of Cases which included the assessee who is shown to be the proprietor of M/s S.K. Jewellers. The subject matter of dispute pertains to the jewellery found at the residence of the assessee i.e. 16, Cecil Hotel, Opposite GPO, Ambala Cantt. and bank locker No. 9 in Bank of India, Ambala Cantt. The break-up of the jewellery is tabulated by the AO in para 4 as under :

3. The assessee was required to explain the same. A perusal of the record shows that the husband of the assessee Shri Sanjay Aggarwal as per order-sheet entry dated 07.12.2018 noticed in the assessment order submitted that the jewellery is ancestral jewellery. CBDT Instruction No. F286/63/93/IT dated 11.05.1994 was relied upon. Apart from that, various other decisions were relied upon. The AO in para 4.3 considering the family size of the assessee which consisted of her husband and two sons accepted the explanation to the extent of 800 gms. With respect to the 460.64 grams. Submission of the assessee was held to be not acceptable. The AO in para 4.4 takes note of the fact that the explanation that it was stock in trade of the business of the husband of the assessee and also through inheritance was not acceptable in view of the fact that no such statement was made either by the assessee or her husband in the statement recorded u/s 132(4). In the said statements, it had not been claimed that it pertained to the stock of the assessee. The explanation dated 10.12.2018 offered before the AO that gold weighing 538.33 grams and silver weighing 9291.17 grams was recorded in the books of account of the assessee was held to be an after thought. However, for the present proceedings, we are concerned with only gold as on account of silver found, the CIT(A) has deleted the addition. The AO relies upon the statement recorded u/s 132(4) on 21.03.2017 of Shri Sanjay Aggarwal at the time of the search; and of Smt. Sudha Aggarwal i.e. the assessee on 26.05.2017 recorded at the time of the locker operation.

3.1 Accordingly, he held that considering the Indian customs and traditions, jewellery to the extent of 800 grams was being allowed.    The remaining was held to be unexplained and addition of Rs. 11,84,000/- was made u/s 69A of the Income Tax Act.

4. Aggrieved, the assessee went in appeal before the First Appellate Authority.

5. Before the CIT(A), the assessee submitted that the total weight of the gold jewellery was infact 959.136 grams and the said jewellery was studded with stones and diamonds. The AO had devised a new formula unsustainable in law wherein actual gold found was enhanced by 341.374 grams of gold to compensate for the diamond weight.

5.1 Such an action as per record has been canvassed to be contrary to the decision of the ITAT, Delhi in the case of KumKum Kanodia V DCIT, New Delhi in ITA 5260/Del/2014 dated 20.11.2018.

5.2 Reliance was also placed on the CBDT Instruction No. 1916 dated 11.04.1994 for the proposition that the permissible limits prescribed requires that only gold weight was to be considered. Relying on the decisions of the ITAT, the order was assailed.

5.3 The assessee also canvassed that locker No. 9 maintained with the Bank of India was in the name of Shri Santosh Kumar Aggarwal and the assessee. It was explained that Shri Santosh Kumar Aggarwal was the late father-in-law of the assessee. The specific period covered in the assessment u/s 153A, it was stated, was starting from 01.04.2010 to 31.03.2016. It was submitted that the mother-in-law of the assessee Mrs. Janak Aggarwal died on 31.03.2010 and after her death, her jewellery was held by her husband Shri Santosh Kumar Aggarwal, father-in-law of the assessee which was in the locker. The locker was also in his name. It was submitted that Shri Santosh Aggarwal also died on 21.06.2015. Thus, the jewellery owned by the in-laws of the assessee continued to be held by the assessee and her husband in the locker jointly held with the late father-in-law. It is also found stated therein that the assessee’s husband is the only son of his late parents. The jewellery was lying in the locker in the name of Shri Santosh Kumar Aggarwal and Smt. Sudha Agarwal.

5.4 It has been stated that these facts were disclosed to the Investigation Team during the statement recorded and Shri Sanjay Aggarwal had clearly stated that, “the above jewellery was found from the locker belonging to our parents, family members and our children”. Copy of the statement was relied upon.

5.5 It is also stated therein that the assessee was married around 29 years back and her mother-in-law and father-in-law were married for about 55 years and jewellery held by both of them was independent of the jewellery held by the assessee.

5.6 Thus, the assessee’s family comprising of assessee herself, her husband, two sons were entitled to credit of 800 grams of jewellery and similarly, her father-in-law and mother-in-law who also had passed away just in the beginning and during the period being considered were also entitled to 600 grams of jewellery. It was submitted that after the event of their death and before the date of the search, the jewellery remained in the locker.

5.7 It has been argued as per record the reason or fact has been referred to by the AO justifying the denial of credit to the assessee of jewellery owned by the in-laws kept in the locker which was maintained in the name of the father-in-law of the assessee alongwith herself. Reliance was placed upon Suneela Soni V DCIT (Delhi) 2018 (3) TMI 1038 for the proposition that addition on facts was not maintainable.

5.8 Apart from this, the assessee is also found to have submitted that a search u/s 132 had taken place at 16 Cesil Hotel, Ambala Cantt. This fact was evidenced from the Panchnama. It has been argued that during the course of the search, the IT officials visited shop No. 4103, Sarafa Bazar, Ambala Cantt., business premises of M/s S.K. Jewellers and brought the entire goods at the residence and valued the jewellery together on 21.03.2017. It has been argued that on the date of search, gold jewellery weighing 538.33 gm existed as per books of Shri Sanjay Aggarwal, Proprietor M/s S.K. Jewellers, husband of the assessee. It has been argued that no credit for the same has been allowed to the assessee. Reliance was also placed upon CBDT Circular No. 14(XL-35), dated 11.04.1955 to highlight that, “Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the department

5.9 The summary of the submissions advanced before the CIT(A) were tabulated as under:

6. Considering the submissions, the CIT(A) summarized these as under :

“5. During the appellate proceedings in addition to submission made before the AO, it was stated that locker from which jewellery was found was also in the name of Late Sh. Santosh Kumar Aggarwal, Father in Law of the appellant. Late Sh. Santosh Kumar Aggarwal and Late Smt. Janki Aggarwal, Mother in law of the appellant who have expired on 31.3.2010 and 21.6.2015 respectively have handed over their jewellery to the appellant. Therefore, the Ld. AR argued that further credit of 500gm of gold jewellery should be given in respect of father in law and mother in law of the appellant. Further, it was stated that stock in trade of M/s S.K. Jewellers was brought from its shop to the residence of proprietor and was valued as jewellery found at the residence. Therefore, the Ld. AR stated that credit for stock in trade weigh 538.33 gm in respect of such stock should be allowed.”

6.1 On a consideration thereof, he came to the conclusion that considering the customs and traditions in terms of the CBDT Circular, credit for jewellery for the three male members (assessee’s husband, two sons) to the extent of 100 grams each was given. For the assessee being a married lady, credit to the extent of 500 gms, of gold had been given. Thus, since credit for 800 gms. of gold already had been given, no further credit could be allowed in respect of Shri Santosh Kumar Aggarwal, father-in-law and late Smt. Janak Aggarwal, mother-in-law of the assessee who had expired on 31.03.2010 and 21.06.2015 respectively as no such claim was made during the assessment proceedings. It was further held that there is no material on record to substantiate the claim that stock-in-trade of M/s S.K. Jewellers was taken to the residence for valuation and no such statement was made by the assessee or her husband recorded during the search. Accordingly, the claim was held to be not substantiated and addition of the said amount was sustained.

7. Addition was sustained in appeal.

8. Aggrieved by this, the assessee is in appeal before the ITAT.

9. The ld. AR carrying the Bench through the detailed submissions canvassed before the authorities below has reiterated the submissions. Attention was invited to the synopsis of the submissions advanced which are placed at pages 1to 3 of the Paper Book. Copy of the surrender letter was also referred to. Carrying the Bench through the submissions recorded in the respective orders, it was highlighted that the grievance is three fold : (a) the manner in which weight of stone/diamonds was converted to gold; (b) how the credit for the jewellery held by the late father-in-law who passed away during the specific period and on record, jewellery held by him and also his late wife who also passed away just before the search period on facts be denied; (c) the denial of credit of gold in the books of the assessee recorded. Specific attention was invited to the observations of the Co-ordinate Bench of the ITAT in the case of Kumkum Kanodia V DCIT (supra) wherein addition made by the AO was deleted by the ITAT and on challenge by the Revenue, the Revenue’s appeal was dismissed holding as under :

“11. We have considered the rival arguments made by both sides and perused the orders of the authorities below. We find that out of the total jewellery valued at Rs.87,82,230/-comprising two reports, the Assessing Officer has not made any addition in the hands of the assessee on account of jewellery valued at Rs.46,09,580/- being the jewellery purchased by M/s Pashupati Jewellers, proprietor Mrs. Sumedha Pathak on the ground that the same has been added in the hands of Mrs. Sumedha Pathak in the assessment year 2011-12. Although in appeal the Id.CIT(A) has deleted such additions, however, the Revenue is not in appeal before the Tribunal. Therefore, we are not concerned with the same. So far as the jewellery weighing 1846.400 gm with 154 ct. diamond valued at Rs.41,72,650/- is concerned, we find the Assessing Officer has made addition of Rs.13,86,500/- which has been reduced to Rs.4,24,773/- by the CIT(A), the reasons for which has already been reproduced in the preceding paragraph. However, while sustaining the addition, he has held that diamond jewellery cannot be equated with gold jewellery in the light of the CBDT Instructions.

It is the submission of the Id. counsel for the assessee that jewellery includes ornaments made of gold, silver, platinum or any other precious metals or any alloy containing one or more precious metals, whether or not containing any precious or semi-precious stones. We find merit in the above arguments of the Id. counsel for the assessee. In our opinion, 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. The decision of the Mumbai Bench of the Tribunal relied on by the Id. counsel for the assessee supports his case wherein the Tribunal, after considering the CBDT Instruction dated 11th April, 1994, has deleted the addition on account of gold and diamond jewellery. Since the addition has been deleted by the CIT(A) and the Revenue is not in appeal before the Tribunal, therefore, considering the totality of the facts of the ‘case, we are of the considered opinion that the Id.CIT(A) is not justified in sustaining the addition to the tune of Rs.4,24,773/- on account of unexplained diamond jewellery of 47.18 carat treating the same as not covered by the CBDT Instruction No. 1916 dated 11th April, 1994. We, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The grounds raised by the assessee are, accordingly, allowed.”

10. The ld. DR relied upon the respective orders of the ITAT. Accordingly, it was his submission that on facts, the relief in terms of the Board’s Circular has already been granted. Copies of ‘Panchnama’ were shown by the ld. CIT-DR showing that search has been conducted on the business premises of the assessee and also the residence of the assessee and subsequently locker No. 9 maintained with the Bank of India in the name of Shri Santosh Aggarwal and Smt. Sudha Aggarwal. It was his vehement stand that in the statement recorded, the assessee has nowhere stated that this was the stock of the assessee. The relevant extracts from the statement recorded has been reproduced in the assessment order itself which has been relied upon by the AO also. It was his submission that the responses of the assessee are self-explicit. Accordingly, it was his submission that the addition may be sustained.

11. We have heard the rival submissions and perused the material available on record. It is a matter of fact that search was conducted on the business premises of the assessee and the residence of the assessee was also covered therein. It is a matter of fact that the business was run by Shri Sanjay Aggarwal alongwith his wife. The ld. AR has repeatedly submitted before us that in the case of the husband, no addition has been made. He has questioned that if it was unexplained gold, then the repeated submissions of the assessee before the AO and before the CIT(A) was that it pertained to the stock in trade of assessee’s business. It has been argued that Shri Sanjay Aggarwal appearing before the AO himself has stated that this pertained to his stock. It is repeatedly a plea on record that no credit for stock to the tune of 538.33 gms. lying in the books of account of the assessee has been given (page 5 para 3 of the impugned order). We find on a perusal of the respective orders of the authorities that there is no rebuttal on any of these submissions. The argument of the Revenue that no such statements were given at the time of the search cannot have any meaning in the present case. Hence, the occasion for requiring the assessee to substantiate its case relying on the statement recorded during the search would arise only if a relevant question is put to the assessee. The questions put to the assessee cannot be dictated to by the assessee and if in the statement recorded, certain facts subsequently repeatedly pleaded on record are not discussed, then absence of any discussion in the statement recorded of those facts by itself cannot be allowed to be given advantage to the Revenue justifying the ignoring of the repeated submission on record. The submission has to be dealt with facts on record. No such effort has been done.

11.1 Be that as it may, the fact is that as per the statement recorded of Smt. Sudha Aggarwal extracted in the assessment order itself, the answer is very categoric. For ready reference, we reproduce the relevant statements extracted by the AO in the assessment order:

Statement of Shri Sanjay Aggarwal during course of search recorded u/s 132(4) of the IT. Act, 1961 on 21.03.2017:-

“Q.   During the course of search, jewellery worth Rs. 10,92,314/- have been found. Please explain about it which is as per valuation report.

Ans: The jewellery belongs to my wife Mrs. Sudha Aggarwal which is lying at my residence as Stridhan of my wife.

Statement of Smt. Sudha Aggarwal during course of search recorded u/s 132(4) of the I.T. Act, 1961 on 26.05.2017 at the time of locker operation:-

‘Q. During the physical operation of locker No. 9, Bank of India, Ambala Cantt. Gold jewellery weighing 791.648 gms value Rs.25.19.942/- and diamond jewellery weighing 49.07 Karrat……… Please explain the source of acquisition of the same.

Ans. The above said jewellery found from the locker belongs to our parents, family members and are children. The above said jewellery is inherited and acquired over a period of time from the tax paid income.”

12. It is also seen that repeatedly the argument on facts that the assessee’s husband was the only child of late Shri Santosh Kumar Aggarwal and late Smt. Janak Aggarwal. The assessee as per record had been married for almost 29 years and Mrs. Janak Aggarwal died on 31.03.2010 i.e. just before the search period and Shri Santosh Aggarwal died on 21.05.2015. Thus, for this specific period, the benefit of 500 grams of jewellery in the hands of Shri Santosh Kumar Aggarwal on account of jewellery held by his wife and 100 grams of jewellery in his own hand was very much available to the family of the assessee. The fact available on record that the locker was maintained in the name of Shri Santosh Kumar Aggarwal alongwith his daughter-in-law i.e. the assessee is a fact also available on record. Even otherwise, we find no logic for enhancing the quantity of gold by the weight of stones and diamonds. We have seen that there was no loose stones/diamonds found during the search. What was found was jewellery studded with stones/diamonds. They have neither been valued nor any Expert Valuer’s report is available on record. Such an action cannot be supported. We have seen that even if it is considered even then alongwith the gold reflected in the books of accounts of the assessee and the explanation on record that credit for the jewellery held by late father and mother-in-law is also considered the occasion to sustain the addition even then does not arise.

13. Accordingly, on a consideration of the facts and material available on record in the light of the submissions of the parties, we find that the addition made cannot be sustained. Being satisfied by the explanation offered by the assessee all along consistently, right from the assessment stage, the addition is directed to be deleted. Ordered accordingly.

14. In the result, the appeal of the assessee is allowed.

Order pronounced on 14th June,2022.