Introduction
Generally, addition of jewellery found during the course of search has been a litigated issue in India from a very long time. The jewellery found during search generally presumed to belongs to searched assessee and his family. The Assessee is required to explain the source of Acquisition of Jewellery. The Jewellery which has been disclosed in the Wealth tax return and for which the source is explained cannot be seized.
The customs of receiving and gifting jewellery has been very old in India on special occasions and Jewellery in India also got transfer from one generation to another as a symbol of love, affection and inheritance. Also, it is difficult for the Assessing Officer to assess whether Jewellery is Self-purchased, gifted or inherited. Hence, in order to avoid the Litigation the Central Board of Direct Taxes had issued instruction to not to seized the jewellery up to a prescribed quantity belonging to each family member.
Power of Search Officer to Seize jewellery
The power of the authorised officer to seize jewellery during the course of search is derived from section 132(1)(B)(iii), which provides that the Authorized Officer should seize any such books of account, other documents, money, bullion, jewellery, or other valuable article or thing found as a result of such search. However, as per the proviso to the said clause, any bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business.
Guidelines for seizure of jewellery and ornaments in course of search
The CBDT has vide instruction No. 1916 dated 11th May, 1994, issued guidelines for seizure of jewellery and ornaments in course of search. The said guidelines, which is reported in (1994) 120 Taxation (St.) 98, is reproduced below.
‘Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations 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 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 authorised officer may, having regard to the status of the family and the custom 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 at 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.
Interpretation of CBDT Instruction by Various Courts
CIT Vs. Ratanlal Vyaparilal Jain Gujarat High Court 2010 (2010) 45 DTR (Guj) 290
It is held that the Instruction No. 1916, dt. 11th May, 1992 which lays down guidelines for seizure of jewellery and ornaments in the course of search takes into account the quantity of jewellery which would generally be held by the family members of an assessee. The circular has been issued for the purpose of layingdown guidelines for seizure of jewellery, unless anything contrary is shown, it can be safely presumed that the source to the extent of the jewellery stated in the circular stands explained.
Sushila Devi V CIT, Delhi High Court
In this case it is held that the jewellery belonged to her and represented accumulation of gifts received from family members over a period of time, and also acquired during the subsistence of her marriage is reasonable and logical.
The nature of ownership of a woman’s Stri dhan is explained by the Supreme Court in its decision Pratibha Rani vs. Suraj Kumar 1985 (2) SCC 70 in the following terms:
“A Hindu married woman is the absolute owner of her Streedhan property and can deal with it in any manner she likes and, even if it is placed in the custody of her husband or her in-laws they would be deemed to be trustees and bound to return the same if and when demanded by her”
The gold jewellery was acquired through gifts made by relatives and other family members over a long period of time, is in keeping with prevailing customs and habits.
The obdurate refusal of the Income Tax officer to release the jewellery constitutes deprivation of property without lawful authority and is contrary to Article 300-A of the Constitution of India.
Hence the department should return the jewellery within two weeks and shall also pay costs quantified at Rs. 30,000/- to the petitioner, within four weeks.
Ashok Chaddha V ITO, 2011, Delhi High Court
In this case the Assessing Officer accepted 400 grams of jewellery as explained and treated jewellery amounting to 506.900 grams as unexplained and made an adhoc addition of Rs 3,87,364 under Section 69A of the Act working on unexplained jewellery, by applying average rate of the total jewellery found
It is held that the assessee is married for more than 25-30 years. The jewellery in question is not very substantial. It is further held that the appellant/assessee is correct in her submission 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. Collecting jewellery of 906.900 grams by a woman in a married life of 25-30 years is not abnormal. Furthermore, there was no valid and/or proper yardstick adopted by the Assessing Officer to treat only 400 grams as “reasonable allowance” and treat the other as “unexplained”.
Smt. Chhavi Anand V ACIT, New Delhi, 2021, ITAT, Delhi
In this case the assessee was stating that the jewellery found from the locker was belonging to the assessee , her husband, her minor son Tarush Anand, unmarried sister-in-law and Late mother-in-law. It is held that the submission of the assessee before the lower authorities that the address of Ms. Shikha David, the unmarried sister-in-law of the assessee is the same as that of the assessee has not been controverted. Merely because the husband of the assessee did not mention the name of Ms. Shikha David in his statement recorded u/s 132(4) in my opinion cannot be a ground to disregard the contention of the assessee that Ms. Shikha David was staying with her in the house belonging to her mother Shikha David who is the mother-in-law of the assessee.
There is no evidence on record brought by the Revenue that Ms. Shikha David who is unmarried at the relevant time was staying elsewhere and not at her parental property. Under these circumstances, the affidavit stating that jewellery weighing 468.260gms which was kept by her in locker of her sister-in- law for safe custody cannot be brushed aside, especially when the entire family doesn’t have any other locker.
Affidavit of the husband and sister-in-law of the assessee stating that jewellery weighing 442.344gms belonging to their late mother i.e. mother-in-law of the assessee was rejected by the learned CIT(A) on the ground that there is no credible or reliable documentary evidence. However Hon’ble ITAT held that although, it may not be accepted in toto however the same also cannot be rejected in toto. Therefore, considering the CBDT instruction/circular 1916, the benefit of 500gms of every married woman, 250gms for unmarried woman and 100gms jewellery for every male member of the family is allowed then entire jewellery found from the locker stands explained
Smt. Pati Devi Vs ITO and Another 240 ITR 727 (Karnataka)
Relying upon CBDT instruction dated 11.5.94 it is held that 500 gms of Gold Jewellery Ornaments per married lady 250 Grams per unmarried lady and 100 grams per male members of the family were need not to be seized as the same were considered reasonable possession by the CBDT.
Navratan Duggar Vs DCIT 2000
In this case gold jewellery of 500 gram per married lady was considered as explained following the CBDT Instruction.
Todarmal Mishra v ACIT 24 ITAT
It is held that the instructions issued by CBDT are fully applicable and addition made on account of jewellery was deleted.
Kailash Chand Sharma Vs. DCIT
It is held that the instructions issued by CBDT are fully applicable and addition made on account of jewellery was deleted.
Whether the CBDT circular will allow Assessee to escape the explain the source of Jewellery?
The above issue is controversial as in some of the Judicial pronouncements the Hon’ble courts have allowed the jewellery up to the limits of CBDT Circular 1994, However in some of the cases the courts have view that the limits in circular saves the Assessee only from seizure of Jewellery not from explaining the source.
Shri A. Ramalingam V DCIT, Coimbatore, 2017, ITAT Chennai
In this case it is held that the exemption claimed by the assessee under CBDT circular is only for seizure of gold jewellery during the course of search operation. As rightly submitted by the Ld. Departmental Representative, it does not absolve the assessee from explaining the source for acquisition of such jewellery. Therefore, the CBDT circular would not come to the rescue of the assessee. The assessee is expected to explain the source for acquisition of jewellery found during the course of search operation. Since proper explanation was not offered, this Tribunal is of the considered opinion that the Assessing Officer has rightly treated Rs. 13,67,995/- as unexplained investment of the assessee in gold jewellery, under Section 69A of the Act.
Cases where the excess jewellery (in excess of Limits of CBDT Circular) is allowed keeping in mind the high status.
Sh. Vibhu Aggarwal V DCIT, New Delhi, 2018,ITAT Delhi
In this case the excess jewellery found in the case of assessee, his parents, his wife, their children and the HUF was very nominal, and was very much reasonable, keeping in mind the riches and high status and more customary practices.
The assessee’s explanation is justified and reasonable. Her contention that the gold jewellery was acquired through gifts made by relatives and other family members over a long period of time, is in keeping with prevailing customs and habits.
SHRI MOHAMMED AKHLAQ, JAIPUR V DCIT, ITAT JAIPUR
The assessee is married for last 30 years and the family of the assessee consists of his wife, three daughters out of which two are unmarried and one unmarried son. It is not in dispute that the assessee over the period of time had purchased some gold jewellery for himself and his family members, and further customary possession of gold jewellery/silver items on account of marriage gifts and gifts on other social occasions and festivities to the assessee and his family members cannot be denied.
The statement of the assessee has to be read as a whole and not in parts. The Revenue cannot take the stand that only part of the statement is accepted and remaining is not acceptable. Where the Revenue disputes a part of the statement as not correct, the onus shifts on the Revenue to prove otherwise and not the assessee. Therefore, going strictly by clause (i) of the CBDT Circular dated 11.05.1994, the gold jewellery found in possession of the assessee is within the permissible limits as belonging to the assessee and other family members including married daughter and children.
The assessee belongs to a reputed old Jagirdar family and so enjoying high status in society, married about 30 years back and has three daughters and one son and possession of gold and silver jewellery is customary in the Indian society and also gifts on marriages and other social functions. The Courts have held that where the CBDT looking to such customs and practices prevailing throughout India, in one way or the another, came out with this Circular and the search team makes no such seizure effectively accepting the status of the assessee, customs and practices and possession of the jewellery, it should also mean that to the extent of the aforesaid jewellery, found in possession of the assessee, even source cannot be questioned.
Hence in this case, looking at the status of the family and the jewellery found during the search, it was held to be reasonable and therefore, the search team, in the first instance, did not seize the said jewellery and thus, in our view, subsequent addition is also not justified on the part of the Assessing Officer. Similar is the position regarding silver jewellery and items found in possession of the assessee in respect of which the source can be said to be duly explained.
Whether Diamond Jewellery will be included in gold
Wealth-tax Act defines jewellery under Explanation 1(a) to section 2(ea) of the Act which read as under:-
“(a) jewellery includes
(i) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel;
(ii) precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel;”
Kumkum Kanodia V DCIT, 2018, ITAT DELHI
It is held that merely because the jewellery is studded with the diamond of 47.18 carat, 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 CIT(A) is not justified in sustaining the addition 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. Hence the authorities are directed to delete the addition.
In which year, addition of the unexplained jewellery should be made?
Section 69A provides that where in any financial year, an assessee is found to be the owner of any jewellery which is not recorded in the books of account and the explanation offered by assessee about the nature and source of acquisition is not satisfactory, then value of such jewellery would be deemed to be income of the assessee in the year in which the assessee was found to be the owner of the jewellery. Meaning thereby, in terms of section 69A, Assessee would be treated in possession of jewellery, when jewellery was found and seized by revenue, and would be taxed as unexplained investment in the year in which it was found i.e., mostly in the year of search.
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