Analysis of CBDT instruction on seizure of jewellery

A deep dive into the CBDT Instruction No. 1916 dated 11th May, 1994 in the matter of seizure of jewellery

Since the time the Narendra Modi government announced the demonetisation of Rs 500 and Rs 1,000 notes on 8 November, the fire of rumors started spreading all around in the matter of seizure of Jewellery held by the people.

With an intention to quell apprehensions, the government has clarified that there is no limit on legitimate holding of gold and jewellery, including from inheritance, and there would be no seizure of bullion up to a certain limit even if that does not seem to match income.

• What it actually means?

“There is no limit on holding of gold jewellery or ornaments by anybody provided it is acquired from explained sources of income including inheritance,” the Finance Ministry said in a statement.

However, with apprehensions continuing to persist in the absence of clarity on limit of holding, the ministry came out with another statement hours later saying there is no limit on gold holding from explained sources of income.

This means that Legitimate holding of jewellery up to any extent is fully protected.

Further, The Government said it has issued directions that officers conducting search have discretion not to seize even higher quantity of gold jewellery based on factors including family customs and traditions.

“The jewellery/gold purchased out of disclosed income or out of exempted income like agricultural income or out of reasonable household savings or legally inherited which has been acquired out of explained sources is neither chargeable to tax under the existing provisions nor under the proposed amended provisions,” the CBDT said.

• What is the CBDT Instruction No. 1916?

The Central Board of Direct Taxes has issued Guidelines/ Instruction No. 1916 dated 11th May, 1994 in the matter of seizure of jewellery, which reads:

Instances of seizure of jewellery of small quantity in the course 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 examined by the Board and following guidelines are issued for strict compliance.

(i) 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.

(ii) 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.

(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.

What this means is, Vide CBDT Instruction no. 1916 dated 11-05-1994, it has been clarified that no seizure should be made by the Search Party of the Jewellery and Ornaments found during the course of search proceedings under Section 132, where the same have been duly declared in the Wealth-tax Returns filed by the taxpayer or where such ornaments are within the prescribed limits of 100, 250 or 500 grams as stated in the said instruction.

For Instance,

A search was carried in the premises of Mr. Ram at his residence and the bank lockers on 14th April, 2016. Gold jewellery of 1294.66 grams was found from the residence of the Mr. Ram as well as his bank lockers. Out of the said jewellery, jewellery to the extent of 500 grams was found to be already declared by the assessee and his wife in the returns of income. In the assessment completed u/s 143(3), the Assessing Officer did not accept the explanation of the assessee in respect of 794.66 grams of jewellery and the value thereof amounting to Rs.12,00,000/-(fictitious figure) was added by him to the total income of the assessee.[He has his wife, Ms. Ram and two children (a daughter, Ms.Sakshi and a son, Mr.Bharat)].

Now, as per the CBDT Instruction No. 1916, the Jewellery that is allowed and that cannot be seized is as follows:

Particulars	Weight (Grams)
Married Lady (Ms. Ram) [A]	500
Male member(Mr. Ram) [B]	100
Male member(Mr. Bharat) [C]	100
Unmarried lady (Ms. Sakshi) [D]	250
Received from mother as per registered will [E]	150.26
Total allowed Jewellery that cannot be seized [F=A+B+C+D+E]	1100.26
Existing Holding [G]	1294.66
Total Jewellery that can be seized and disallowed [G-F]	194.4

Thus, the total of 194.4 grams of gold jewellery can be assessed and disallowed for making the additions to the total income i.e. can be treated as unexplained and taxed accordingly as per section 69B of The Income Tax Act, 1961 at the rate specified in section 115BBE of The Income Tax Act, 1961(discussed later).

Further, 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 assessee.

♣ What we can conclude form some landmark judgments?

• In case of CIT v. Satya NarainPatni [2014] 46 taxmann.com 440 (Rajasthan) the Rajasthan High Court held that the CBDT had clearly provided that prescribed limit of jewellery will not be seized, it would mean that taxpayer, found with possession of such jewellery, will also not be questioned about its source and acquisition.

• In case of CIT v. Ghanshyam Das Johri [2014] 41 taxmann.com 295 (Allahabad) the Allahabad High Court held that if one goes with CBDT’s Instruction No. 1916, dated 11-5-1994 then a married lady of reputed family is expected to own 500 gms of ornaments. Therefore, jewellery found in possession to that extent could not be treated as undisclosed investment.

• In the case of CIT v. Divya Devi [2014], it says that though it is true that the CBDT Instruction No. 1916, dt. 11th may, 1996 lays down guidelines for seizure of jewellery and ornaments. In the course of search, the same takes into account the quantity of jewellery which would generally be held by family members of an assessee belonging to an ordinary Hindu household. In the circumstances, unless the Revenue shows anything to the contrary, it can safely be presumed that the source to the extent of the jewellery stated in the circular stands explained.
  

• In the case of Jerambhai B.Khokharia, Surat vs Department Of Income Tax on 5 November, 2015, it is ample clear that gold jewellery found to the extent of limit mentioned in the circular is treated as explained and this can be clearly applied on the assessee’s case, wherein no specific deduction of gold jewellery possessed by family members and grand children was given by the Assessing Officer from the total gold jewellery found at the time of search and seizure operation and differential gold jewellery of 1924.22 gr. is the gold jewellery possessed by the female members and minor children of the assessee’s joint family and this quantity of 1924.22 gr. is well within the total limit of jewellery at 2100 gr. as per the CBDT instruction no.1916 dated 11.05.1994.

♣  What does section 69B of Income Tax Act, 1961 say?

Amount of investments, etc., not fully disclosed in books of account

Where in any year the taxpayer has made investments or is found to be the owner of any bullion, jewellery or other valuable article, andthe Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the taxpayer for any source of income, and the taxpayer offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, than the excess amount may be deemed to be the income of the taxpayer for such year.

♣  The Unexplained investments as per section 69B will be taxed under section 115BBE. What is the rate of tax?

Existing Provisions

As per section 115BBE, where the total income of a taxpayer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of—

(a) The amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable); and

(b) The amount of income-tax payable on his other income (i.e., income other than covered by sections 68, 69, 69A, 69B, 69C, and 69D) at the rates applicable to such other income.

Section 115BBE further provides that no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the taxpayer under any provision of Income-tax Act in computing his income referred to in sections 68 to 69D.

Thus, the taxpayer is neither entitled to claim any deduction nor entitled to set off any loss for the unexplained expenditure and nor entitled to adjust the basic exemption limit against cash credits charged to tax by virtue of provisions of sections 68 to 69D.

Proposed Provisions as per the Taxation Laws (Second Amendment) Bill, 2016 (‘the Bill’)

Amendment to Section 115BBE

Where the total income of an assessee , includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139

or,

determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered above.

Then, Income tax shall be the aggregate of-

I) the amount of income-tax calculated on the income referred above @ 60% and

II) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (I).

III) surcharge on (I) above, calculated @ 25% of Tax (i.e. 15% of such income).

Further, Penalty under the proposed section 271AACat the rate of ten per cent of the tax payable under clause (i) of sub-section (1) of section 115BBE may be imposed, if applicable.

Crux:

On careful considerations of the instruction and few of the above discussed judgments, we can conclude that the intention of CBDT in issuing the said instruction is that jewellery to the extent of 500 gms in the case of a married lady, 250 gms per unmarried lady and 100 gms per male member should be treated as explained and need not be considered as unexplained investments. Further, the department has also opined in view the size and status of the family and also considering the normal customs to which the family belongs, the AuthorizedOfficer may exclude larger quantities of gold and ornaments from seizure. Further, Legitimate holding of jewellery up to any extent is fully protected.

(Author can be reached at navyamalhotra28@gmail.com)