Dev Kishan Joshi Vs DCIT (ITAT Mumbai)
Mumbai ITAT Deletes ₹36.36 Lakh Protective Addition for Seized Gold Jewellery: Mere Physical Possession Cannot Establish Ownership
The Mumbai ITAT deleted a protective addition of ₹36,35,934 under section 69A relating to gold jewellery found in the assessee’s physical possession. The jewellery formed part of 6,020.46 grams seized by GRP, Ratlam; 18 items weighing 1,568.370 grams gross were attributed to the assessee.
The assessee consistently denied ownership and explained that he was merely accompanying another person for marketing the jewellery and earning commission. Significantly, the Director of M/s B. Nishant Jewels Pvt. Ltd. claimed that the jewellery belonged to the company, and the AO had already made a substantive addition under section 69A in the company’s hands. The addition in the assessee’s hands was expressly made only on a protective basis.
The Tribunal held that although physical possession is relevant under section 69A, it cannot be considered in isolation. The Department’s own evidence and its decision to substantively assess the identical jewellery in the company’s hands had to be considered.
Importantly, the ITAT rejected the CIT(A)’s view that the protective addition should continue until the substantive addition attained finality. It observed that a protective assessment is only a contingent safeguard during genuine uncertainty; it cannot become an independent and perpetual charge merely because proceedings against the substantive assessee remain pending. There must be some positive material showing that the person protectively assessed was actually or beneficially the owner.
The Tribunal also held that the assessee’s failure to prosecute the CIT(A) appeal could justify an ex parte order, but non-compliance itself cannot constitute evidence of ownership or convert a protective addition into a substantive one.
Finding no independent positive material establishing that the assessee was the actual or beneficial owner, the ITAT directed deletion of the entire ₹36.36 lakh addition under section 69A and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been preferred by the assessee against the order dated 12.10.2023 passed by the learned Commissioner of Income-tax (Appeals)-47, Mumbai, for Assessment Year 2018-19, arising out of the assessment framed under section 143(3) of the Income-tax Act, 1961. The principal grievance of the assessee is against confirmation of protective addition of ₹36,35,934/- made under section 69A of the Act in respect of gold jewellery seized in proceedings emanating from requisition under section 132A of the Act. The assessee has also challenged the manner in which the learned CIT(A) disposed of the first appeal ex parte and sustained the protective addition despite the material already forming part of the assessment record.
2. At the outset, there is a delay of 657 days in filing the present appeal before the Tribunal. The assessee has filed an application seeking condonation of the delay supported by an affidavit explaining the circumstances in which the appeal could not be filed within the prescribed period. It has been stated that after dismissal of the first appeal, the assessee, acting upon the legal advice then received, was pursuing various remedies arising out of the very same seizure proceedings, including proceedings relating to quashing of the criminal proceedings, release of the seized jewellery and proceedings which eventually travelled before the Hon’ble Supreme Court. It was thereafter, upon obtaining fresh legal advice, that the assessee was advised to independently challenge the appellate order before this Tribunal. We have considered the explanation in the light of the attendant circumstances. The material placed before us does not indicate that the assessee had deliberately abandoned his statutory remedy or that the delay was occasioned by any mala fide or dilatory design. Rather, the assessee was pursuing remedies connected with the same seizure and the same jewellery during the intervening period. While considering sufficient cause, what is material is the acceptability and bona fides of the explanation rather than the mere numerical length of the delay. Having regard to the entirety of the circumstances and bearing in mind that a substantial addition under section 69A is involved, we are satisfied that sufficient cause has been shown. Accordingly, the delay of 657 days is condoned and the appeal is admitted for adjudication on merits.
3. The material facts giving rise to the present appeal are that on 12.07.2017, the GRP, Ratlam intercepted two persons, namely, Shri Mahesh Jagbandhu Roy and the present assessee, Shri Dev Kishan Joshi, and seized gold jewellery comprising in all 112 items weighing 6,020.46 grams. This was followed by issuance of warrant of authorisation under section 132A by the Pr. DIT (Investigation), Bhopal. Consequent to the requisition, the case of the assessee was centralised to the charge of the Assessing Officer, Central Circle-1(3), Mumbai. Notice under section 142(1) was thereafter issued and the assessee filed his return of income for Assessment Year 2018-19 on 22.10.2019 declaring total income of ₹1,52,350/-. Notices under sections 143(2) and 142(1) were issued and the assessee participated in the assessment proceedings. The assessment record describes the assessee as a person doing a job and also earning commission.
4. Insofar as the present assessee is concerned, 18 items of gold jewellery having gross weight of 1,568.370 grams and net weight of 1,323.120 grams, valued at ₹36,35,934/-, were attributed to his possession. His statement was initially recorded under section 131 before the ITO-2, Ratlam on 13.07.2017 and thereafter again before the ITO-18(2)(4), Mumbai on 17.11.2017. The tenor of his explanation throughout was that he had accompanied Shri Mahesh Jagbandhu Roy for marketing the gold ornaments and that he was not aware of their actual ownership. During the course of the assessment proceedings, his statement was once again recorded under section 131 on 01.10.2019. In answer to the questions put to him, he reiterated that his role was merely to accompany Shri Mahesh Roy for marketing the jewellery; that he did not maintain the stock register or records concerning the goods; that such records, if any, would be with Shri Mahesh Roy; and, importantly, that neither he nor Shri Mahesh Roy was the owner of the jewellery. When specifically confronted with the statement of Shri Mahesh Roy that the jewellery belonged to M/s B. Nishant Jewels Pvt. Ltd., the assessee stated that he was personally unaware of its precise ownership. He further explained that he was a small-time worker earning a meagre income by way of commission on booking of orders and categorically denied ownership of the seized jewellery. He candidly admitted, however, that he did not possess documentary evidence by which he could independently establish that the jewellery did not belong to him.
5. The Assessing Officer proceeded on the premise that since the jewellery was found in the physical possession of the assessee, the initial burden lay upon him to establish its source and ownership. The assessee was once again required through order-sheet entry dated 08.11.2019 to explain why the jewellery valued at ₹36,35,934/- should not be treated as unexplained. In reply dated 11.11.2019, the assessee reiterated that he had been travelling with Shri Mahesh Jagbandhu Roy to Delhi when they were intercepted at Ratlam and that the gold ornaments did not belong to him. A further notice under section 142(1) dated 15.11.2019 required him to furnish documentary evidence demonstrating that the jewellery was not his. Since the Assessing Officer found that no such documentary evidence had been furnished, he held that the assessee had failed to establish the source and ownership of the jewellery and, therefore, considered its value liable to be brought within the ambit of section 69A.
6. However, the matter did not rest there. The assessment order itself records a material circumstance which goes to the very root of the present controversy. A statement of Shri Bhavin Nalinkant Shah, Director of M/s B. Nishant Jewels Pvt. Ltd., had been recorded under section 131 on 23.11.2017 wherein he claimed that the seized jewellery belonged to M/s B. Nishant Jewels Pvt. Ltd. During the assessment proceedings of the said company, the company, according to the Assessing Officer, could not establish that the seized jewellery formed part of its disclosed stock. Consequently, the value of the jewellery was brought to tax under section 69A in the hands of M/s B. Nishant Jewels Pvt. Ltd. on substantive basis. It was only thereafter and precisely because the substantive addition had already been made in the hands of the company that the Assessing Officer made the corresponding addition of ₹36,35,934/- in the hands of the present assessee on protective basis. Thus, the character of the addition in the present appeal is not a matter of inference; the Assessing Officer himself consciously and expressly characterised it as protective after making the substantive addition in the hands of M/s B. Nishant Jewels Pvt. Ltd.
7. The assessee carried the matter in appeal before the learned CIT(A). Several notices under section 250 were issued on 13.07.2022, 18.10.2022, 18.11.2022, 19.12.2022, 01.06.2023 and 22.09.2023; however, there was no compliance and the appeal was consequently disposed of ex parte on the basis of the material available on record. While dealing with the addition on merits, the learned CIT(A) noticed that the assessee had stated that his role was confined to accompanying Shri Mahesh Roy for marketing the jewellery. He also noticed that Shri Bhavin Nalinkant Shah, Director of M/s B. Nishant Jewels Pvt. Ltd., had claimed that the seized jewellery belonged to the company and that substantive addition had already been made in the hands of the said company. Nevertheless, the learned CIT(A) held that since the jewellery had been found in the possession of the assessee and the assessee had failed to substantiate its source and ownership by documentary evidence, the protective addition could not be disturbed until the substantive addition in the hands of M/s B. Nishant Jewels Pvt. Ltd. attained finality. The addition of ₹36,35,934/- was accordingly confirmed.
8. We have considered the orders of the authorities below and the entire material available on record. The issue requiring adjudication is whether, in the peculiar factual setting obtaining here, the protective addition of ₹36,35,934/- under section 69A can legitimately continue in the hands of the assessee merely because the jewellery was physically found in his possession, notwithstanding that the Revenue itself has made the substantive addition in respect of the very same jewellery in the hands of M/s B. Nishant Jewels Pvt. Ltd.
There can be no dispute that physical possession of money, bullion, jewellery or other valuable article is a relevant circumstance for the purpose of section 69A and that where such asset is found in the possession of a person, the explanation regarding its nature, source and ownership assumes significance. Equally, however, the circumstance of possession cannot be viewed in complete isolation from the remaining material collected by the Department itself. The evidentiary picture has to be appreciated in its entirety, particularly when the Department, upon considering the material gathered during investigation, has itself identified another person as the person in whose hands the value of the same asset ought to be substantively assessed.
9. In the present case, the assessee never admitted ownership of the jewellery. His statements recorded on different occasions consistently disclose that he was accompanying Shri Mahesh Jagbandhu Roy in connection with marketing of gold ornaments and was earning commission from such activity. It is true that the assessee was unable to furnish documentary evidence conclusively establishing the ownership of M/s B. Nishant Jewels Pvt. Ltd. and, when specifically questioned, stated that he himself was unaware of the exact ownership. This aspect cannot be ignored and has indeed been specifically noticed by the Assessing Officer. But this circumstance cannot equally be divorced from the other material available with the Revenue. Shri Mahesh Jagbandhu Roy, who was travelling with the assessee and from whose possession the remaining jewellery was seized in the same interception, had stated that the jewellery belonged to M/s B. Nishant Jewels Pvt. Ltd.; the Director of that very company, Shri Bhavin Nalinkant Shah, also claimed ownership of the seized jewellery in his statement recorded under section 131; and, most significantly, the Assessing Officer acted upon the material relating to the company by making the substantive addition in its hands. Thus, the present case is materially different from a situation where unexplained jewellery is found in the exclusive possession of a person and there exists nothing on record other than his bare denial of ownership.
10. The concept of a protective assessment is invoked where, owing to uncertainty regarding the correct person in whose hands a particular income or asset is liable to be assessed, the Revenue seeks to safeguard itself against possible loss while making the substantive assessment in the hands of the person whom it considers primarily liable. Such an assessment is, by its very nature, contingent and protective. Here, once the Assessing Officer chose, on the material before him, to bring the value of the very same jewellery to tax substantively in the hands of M/s B. Nishant Jewels Pvt. Ltd., the corresponding addition in the assessee’s hands was retained merely as a protective measure. For sustaining such protective addition at the appellate stage, there must at least be some material capable of establishing that the substantive assessment in the hands of the company was misplaced and that the assessee himself was the actual or beneficial owner of the jewellery. No such independent material has been referred to either by the Assessing Officer or by the learned CIT(A). Their case against the assessee rests essentially upon physical possession and his inability to produce documentary proof of ownership in another person, whereas the Revenue’s own record simultaneously contains the claim of ownership by the Director of the company and a substantive assessment of the identical asset in the company’s hands.
11. We are, therefore, unable to concur with the reasoning of the learned CIT(A) that the protective addition must necessarily remain alive until the substantive addition in the hands of M/s B. Nishant Jewels Pvt. Ltd. attains finality. If accepted as an inflexible proposition, such reasoning would permit a protective assessment to continue indefinitely without an affirmative determination, based upon evidence, that the income or asset was in fact taxable in the hands of the person protectively assessed. A protective assessment is intended to protect the legitimate interest of the Revenue during a period of genuine uncertainty; it cannot be transformed into an independent and perpetual charge merely because proceedings concerning the substantive assessee may remain pending. The appellate authority, when called upon to examine the protective addition, has to decide its sustainability on the basis of the evidence forming part of the record. Nor does the assessee’s failure to effectively prosecute his appeal before the learned CIT(A) improve the evidentiary foundation of the addition. Non-compliance may warrant an ex parte disposal on the basis of the available record, but it cannot itself constitute evidence of ownership or convert a protective addition into a substantive one.
12. There is also an important connected circumstance which reinforces the above conclusion. The present seizure was a composite interception involving the assessee and Shri Mahesh Jagbandhu Roy, both travelling together with the jewellery. We have already dealt with the connected appeal of Shri Mahesh Jagbandhu Roy arising out of the very same seizure, wherein the protective addition made in respect of the jewellery attributed to his possession has been deleted. The factual substratum in the present appeal is substantially the same: the interception is the same; the journey and the seizure are the same; the asserted owner is the same company, namely M/s B. Nishant Jewels Pvt. Ltd.; the statement of the Director claiming ownership forms part of the common evidentiary chain; and the substantive assessment has been made in the hands of the very same company. No distinguishing material has been brought before us which could justify sustaining the protective addition in the present assessee’s hands while deleting the corresponding protective addition arising from the same transaction in the case of Shri Mahesh Jagbandhu Roy. Consistency in adjudication of two appeals resting upon the same transaction and substantially identical evidentiary foundation also requires the same conclusion, unless some material distinction is demonstrated; none has been shown to us.
13. Thus, when the entire factual matrix is viewed cumulatively rather than in isolated fragments, the position which emerges is that the assessee consistently denied ownership and explained the limited capacity in which he was accompanying Shri Mahesh Jagbandhu Roy; Shri Mahesh Roy attributed the jewellery to M/s B. Nishant Jewels Pvt. Ltd.; the Director of that company himself claimed that the seized jewellery belonged to the company; the Revenue proceeded to make a substantive addition in respect thereof in the hands of the company; and the addition in the assessee’s hands was consciously made only on a protective basis. Against these circumstances, there is no independent positive material establishing that the assessee was the actual or beneficial owner of the jewellery. Mere physical possession, though certainly relevant, cannot in the peculiar facts of this case outweigh the Revenue’s own substantive treatment of the same asset coupled with the surrounding statements and evidence. We are, therefore, of the considered view that the protective addition of ₹36,35,934/- under section 69A has no sustainable foundation and cannot be allowed to survive. The finding of the learned CIT(A) is accordingly set aside and the Assessing Officer is directed to delete the protective addition of ₹36,35,934/-.
14. Insofar as the levy of interest under sections 234A, 234B and 234C is concerned, the same is consequential and the Assessing Officer shall recompute the interest, if any, while giving effect to this order. The grounds concerning initiation of penalty proceedings under sections 271AAB and 271AAC do not call for any separate adjudication at this stage, being consequential/premature in nature. Accordingly, the substantive grounds raised by the assessee are allowed.
15. In the result, the appeal of the assessee is allowed.
Order pronounced on 7thAugust, 2026.
