Gold Jewellery Quantity in Line with Possible Holdings: ITAT Deletes Addition

DCIT Vs Satish Praphulla Chandra (ITAT Bangalore)

Introduction: A recent ruling by the Income Tax Appellate Tribunal (ITAT) Bangalore provides valuable insights into the treatment of gold jewelry in income tax assessments. In this case, the ITAT upheld the deletion of an addition under Section 69B concerning gold jewelry holdings due to compliance with declarations and purchases.

Detailed Analysis: The case involved an individual, Shri Satish Praphulla Chandra, whose premises were subjected to a search and seizure operation on 1st February 2018. During this operation, a significant amount of gold jewelry, totaling 8650.81 grams, was discovered. The value of the gold jewelry, determined by an Approved Valuer, was found to be Rs. 4,73,01,204.

However, discrepancies arose regarding the declared gold jewelry holdings and the gold jewelry found during the search. In his returns for the assessment year 2016-17, the assessee had declared total jewelry worth Rs. 3,93,50,000, but the value was calculated using a rate of Rs. 3123 per gram, which was the prevailing rate at the time of the search. This rate differed from the rate of Rs. 2611 per gram for 22-carat gold, as per the published rate on 31st March 2016.

The Assessing Officer (AO) noted that the assessee claimed to have purchased jewelry worth approximately Rs. 1 crore after 1st April 2016, but no bills were provided during the search. Instead, the assessee submitted bank account extracts as proof of these purchases. The AO scrutinized the bank account extracts and concluded that only jewelry worth Rs. 49,01,438 had been acquired after 1st April 2016. Subsequently, he seized jewelry weighing 2581.59 grams, valued at Rs. 80,67,469, and added it to the assessee’s income as unexplained investment in jewelry under Section 69B.

However, the ITAT decision highlighted key errors in the AO’s approach. It was observed that the valuation of the declared jewelry in the return for the assessment year 2016-17 was based on the incorrect prevailing rate at the time of the search. Adjusting this rate to the correct figure, the gold jewelry found during the search was in compliance with the declarations made in previous returns.

Furthermore, the assesses successfully demonstrated that the jewelry purchased after 1st April 2016 had been accounted for and were supported by bank account extracts as evidence of legitimate transactions.

The ITAT, in alignment with the contentions made by the Authorized Representative (AR) of the assessee, ruled in favor of the deletion of the addition under Section 69B.

Conclusion: The ITAT Bangalore’s ruling serves as an essential reminder of the necessity for thorough record-keeping, accurate declarations, and the importance of considering the correct valuation rates. In this case, the taxpayer successfully defended the legitimacy of their gold jewelry holdings by providing adequate documentation and justifications.

The ITAT’s decision reaffirms the principle that an addition under Section 69B should only be made when there is clear evidence of undisclosed income. The fact that the gold jewelry holdings aligned with the declarations and that the purchases were accounted for with supporting bank records played a pivotal role in the favorable ruling.

In conclusion, this case emphasizes the significance of proper documentation and adherence to the correct valuation rates, which can be instrumental in ensuring that legitimate assets are not misinterpreted as undisclosed income under tax laws.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal by the revenue is against the order of CIT(A)- 11, Bangalore dated 28.2.2023 for the AY 2018-19.

2. Facts of the case are that a search & seizure operation was conducted in the case of Shri Satish P Chandra on 01-02-2018. The assessee filed his original return of income on 31-10-2018 declaring taxable income of Rs. 1,83,91,940/-. Notice u/s 143(2) of the Income-tax Act,1961 [‘the Act’ for short] was issued on 05-07-20 19 and served on the assessee. Notice u/s 142(1) issued on 06-05-2019 calling for information. During the search proceedings, Jewellery of 8650.81 gms of gold was found from residential premises of the assessee. The aforesaid jewellery found at the time of search was valued by an Approved Valuer which aggregated to Rs. 4,73,01,204/-. As per return of income filed for the AY 20 16-17 of himself, wife and son the assessee, as on 31-03-2016, had accounted total jewellery of Rs. 3,93,50,000/-. The assessee was asked to explain the excess jewellery found during the search proceedings. The assessee in the statement recorded u/s 132(4) of the Act stated that jewellery purchased after 1.4.2016 amounts to Rs. 1 crore approximately for which he was unable to produce bills during the search proceedings but he had submitted bank statement as a proof for the purchases. The same was examined by the ld. AO and noticed that the assessee had purchased jewellery worth of only Rs. 49,01,438/- after 01-04-2016. But the assessee could not produce the bills for the purchase of the jewellery. Hence, jewellery of 2581.59 gms. valued at Rs. 80,67,469/- was seized and the AO concluded the assessment making addition of Rs. 80,67,469/- towards unexplained investment in jewellery u/s 69B of the Act.

3. The ld. CIT(A) observed that the only issue disputed in appeal is that the value of jewellery amounting to Rs. 80,67,469/- taxed as unexplained jewellery u/s 69B of the Act. During the search conducted on 01-02-2018, gold jewellery weighing 8650.81 gms was found which came to be valued at the rate of Rs. 3123 p/gms which was prevalent rate on the date of search. He observed that as per the AR of the assessee, the ld. AO made the following errors in treating the jewellery of Rs. 80,67,469 taxed as unexplained jewellery.

3.1 He further observed that the ld. AO himself has mentioned in para no. 3 of the assessment order that the jewellery valued at Rs.3,93,50,000/- was accounted as on 31-03-2016 in the Return of Income for the AY 2016-17 of himself, his wife & his son. This jewellery came to be valued applying the prevalent rate of Rs. 3123 per/gms on the date of search instead of the rate of Rs. 2611 per/gms for 22 ct. (as per published rate) as on 31-032016. If this analogy is corrected, the alleged unexplained jewellery should be treated as explained as per the ld. A.R. of the assessee.

3.2 He further observed that the assessee stated that the jewellery purchased after 01-04-2016 was not considered in arriving at the alleged unexplained jewellery of Rs. 80,67,469/- The assessee had produced before the Assessing Officer, the bank accounts extract evidencing payment of purchase of jewellery after 01-04-2016. The relevant facts are noted in the assessment order itself. In the light of the above, he observed that there is no unexplained jewellery as per the Authorized Representative (AR) of the assessee.

3.3 The ld. CIT(A) observed that it is not disputed that the jewellery valued at Rs. 3,93,50,000/- was declared in the Return of Income as on 3 1-03-2016. As per the inventories, panchanama, and valuation report, the said jewellery available with the assessee came to be valued at the rate of Rs. 3123 p/gms applying the prevalent rate as on date of search. The jewellery declared in the return of income for AY 2016-17 should be valued applying the rate of Rs. 2611 p/gms prevailing as on 31-03-2016.As the value of ornaments found on the date of search of Rs. 4,73,01,204/- included the value of precious stones as well and in the inventory of ornaments belonging to the assessee’s wife and daughter, a sum of Rs. 32,79,175 and Rs. 1,65,54,680/- respectively is considered as the value of precious stones. Some of these ornaments with precious stones have also been acquired by the assessee and his wife after 01-04-2016 which has been established from the invoices produced and these items are excluded from the working since these items are not seized. The working of the value of the jewellery declared in the return of income for AY 20 16-17 would be as under:

3.4 The ld. CIT(A) observed that as could be seen from the above if the jewellery unexplained applying the correct rate, the entire value of gold seized at the time of search stands explained with reference to the disclosure made in the income tax return for the assessment year 2016-17 and there is no unexplained jewellery of Rs. 80,67,469/.

3.5 He further observed that it is also not disputed that the payments made for the purchase of jewellery after 01-04-2016 through the banking channels as evidenced by the bank account extracts is not considered by the Assessing Officer. Since the adaptation of correct rate, value of jewellery itself shows there was no unexplained jewellery of Rs.80,67,469/- it is not necessary to conduct further examination into the purchases made after 01-04-2016 through banking channels and are accordingly accounted.

3.6 Therefore, the ld. CIT(A) observed that the ld. AO was not correct in making the addition of Rs. 80,67,469 on account of unexplained jewellery. Thus, he directed the ld. AO to delete this addition and allowed the ground of the assessee. Against this revenue is in appeal before us.

4. We have heard the rival submissions and perused the materials available on record. In this case, total gold ornaments found during the course of search action was weighing at 8650.81 gms. According to the ld. AO, there was excess jewellery to the tune of Rs.80,67,469/- and accordingly, he made the addition. The contention of the ld. D.R. is that the assessee has purchased jewellery after 1.4.2016 approximately amounting Rs. 1 Crore, for which no bills are produced. The assessee has stated that it has purchased jewellery through the banking channels. On going through it, the ld. AO found that assessee has purchased jewellery through banking channels only to the tune of Rs.49,01,438/- after 1.4.2016 and further the ld. AO found that approximately Rs.30 lakhs worth has been purchased by assessee in the form of bullion and gold coins and it is not the gold ornaments. Hence, he considered the excess jewellery found during the course of search action at Rs.80,67,469/-. However, after going through the entire facts and circumstances of the case, the ld. CIT(A) has observed that assessee has declared jewellery in his income tax return for the assessment year 2016-17 at Rs.3,93,50,000/-. After excluding the stones and diamonds, the purchase after 1.4.2016 is at Rs.1,53,13,172/- and the remaining jewellery was at Rs.2,40,36,828/-. Out of this, he deducted the jewellery purchased in the financial year 2017-18 upto Rs.3,04,353/- and net value of jewellery as on 31.3.2016 is arrived at Rs.2,37,32,475/-. Since the value of jewellery as on 31.3.2016 was Rs.2,611/- p.gm., the ld. CIT(A) had arrived at the possible quantity of gold with the assessee as on 3 1.3.2016 weighing at 9089 gms. and thus, the quantity of gold found during the course of search was 8650.81 gms., which is lesser than the possible gold to be with assessee as on 31.3.2016 at 9089 gms. As such, he gave a relief to the assessee for having the gold, which is less than the possible gold to be with the assessee as on 31.3.2016. In this finding of the ld. CIT(A), we do not find any infirmity and he has taken the possible view on the issue and the same is confirmed. Hence, all the grounds of revenue are dismissed.

5. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 12^th Sept, 2023