Jewellery held by Minor Son and Daughter: Benefit of CBDT Circular can be Extended

Benefit of CBDT Circular providing Ceiling on Holding of Jewellery can be Extended to Jewellery held by Minor Son and Daughter: ITAT

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that the benefit of the circular issued by the Central Board of Direct Taxes (CBDT) providing a ceiling on the holding of the amount of jewellery by “family members” can be extended to the jewellery held by a minor son and daughter. The assessing officer, after the search proceedings, made an addition of Rs.7.67 Lacs which represent unexplained investment in Jewellery. As per valuation report, gold jewellery of 815.10 grams and 19.41 carats of diamonds worth Rs.29.24 Lacs was found. Most of the jewellery was stated to be gifted by assessee’s father on the occasion of marriage in the year 2000 as streedhan and the balance was stated to be received in gift on occasion of family functions. The assessee filed affidavit of father-in-law and relied on Board’s Instructions Nos.1916 dated 11.05.1994 which provide concession of 500 grams gold jewellery to married lady, 250 grams to unmarried lady and 100 grams to male member of the family. Before the authorities, the assessee contended that jewellery of 815 grams could reasonably be expected to be in the possession of the household. On first appeal, the CIT(A) noted that AO did not gave benefit for assessee’s minor son and daughter. After giving further concession of 350 grams, the impugned addition was deleted. Holding in favour of the assessee, Shri Mahavir Singh, Vice President and Shri Manoj Kumar Aggarwal, AM observed that “It could be seen that Ld. AO has granted concession as per CBDT Instruction No.1916 dated 11.05.1994 but it failed to give applicable concession for minor son and daughter. If further quantities for minor son and daughter are considered, nothing would remain to be added since the quantity of jewellery fall within the permissible limits. Another fact to be noted is that the assessee has also discharged the onus of establishing the source of jewellery. Accordingly, the impugned additions have rightly been deleted by Ld. CIT(A).”

What does CBDT Instruction No. 1916 consist of? 

In regards to the seizure of jewellery, the Central Board of Direct Taxes has issued Guidelines/Instruction No. 1916, dated May 11th, 1994, which states: The Board has been made aware of instances in which modest amounts of jewellery have been seized during operations under Section 132. The Board has looked into the subject of a standard response in cases when search parties discover jewellery, and the following rules have been established for strict adherence. 

(i) Gold jewellery and decorations found to be heavier than the gross weight indicated in the wealth-tax return only need to be seized in the case of a wealth-tax assessee. 

(ii) Gold jewellery and decorations up to 500 grammes per married woman, 250 grammes per single woman, and 100 grammes per male family member do not need to be seized in the case of a person who is not subject to the wealth tax. 

(iii) The authorised officer may choose to exempt a larger amount of jewellery and decorations from seizure, taking into account the position of the family, the customs and practises of the community to which the family belongs, as well as other circumstances of the case. When providing the search report, this should be mentioned to the Director of Income-tax or the Commissioner who authorised the search. 

(iv) A thorough inventory of the jewellery and ornaments discovered must always be made in order to be used for assessment. 

This means that, according to CBDT Instruction No. 1916 dated 11-05-1994, it has been made clear that the Search Party may not seize any jewellery or ornaments discovered during the course of search proceedings under Section 132 if they have been properly declared in the taxpayer’s wealth-tax returns or if they are under the prescribed weight limits of 100, 250, or 500 grammes. 

As an illustration, on April 14, 2016, a search was conducted at Mr. Ram’s home and bank vaults. A total of 1294.66 grammes of gold jewellery were discovered in Mr. Ram’s bank vaults and home. Out of the aforementioned jewellery, it was discovered that the assessee and his wife had already claimed 500 grammes of it in their income tax forms. The Assessing Officer did not accept the assessee’s answer in the assessment completed under Section 143(3), and he added the value of the jewellery, which totaled Rs. 12,00,000 (a fictional sum), to the assessee’s total income. [He is married to Ms. Ram and they have two children, a girl named Ms. Sakshi and a son named Mr. Bharat] 

Currently, the jewellery that is permitted and that cannot be taken is as follows, under CBDT Instruction No. 1916:

Thus, the 194.4 grammes of gold jewellery as a whole can be evaluated and excluded for increasing the total income, or it can be classified as unexplained and taxed in accordance with section 69B of the Income Tax Act of 1961 at the rate indicated in section 115BBE of the Income Tax Act of 1961. (discussed later). 

Additionally, Hon’ble Ahmedabad I.T.A.T. explains this circular in the cases of Kishorbhai V. Sakaria Rameshchandra R. Patel 89 ITD 203 and Manila! In S Dave 117 Taxman 23, which is cited above, it was explicitly held that even though the board circular is a guideline for not carrying out seizures during searches, its extended meaning demonstrates the intention that jewellery to the extent specified in the circular should be treated as explained jewellery and gold found to that extent for family members cannot be treated as unexplained in the assessee’s possession. 

CIT v. Satya Narain Patni [2014] 46 The Rajasthan High Court ruled that the CBDT had explicitly said that jewellery above the allowed limit would not be seized, which meant that taxpayers who were found in possession of jewellery exceeding the allowed limit would not be asked where they got the jewellery from or how they got it. 

The Allahabad High Court decided that if one follows CBDT’s Instruction No. 1916, dated 11-5-1994, then a married lady of reputable family is anticipated to hold 500 gms of jewellery in the matter of CIT v. Ghanshyam Das Johri [2014] 41 (Allahabad). Therefore, jewellery discovered to be in such extensive possession could not be considered a concealed investment. 

Although it is true that the CBDT Instruction No. 1916, dt. 11th May, 1996 provides down instructions for the seizure of jewellery and decorations, it is stated in the case of CIT v. Divya Devi [2014] that this is not the case. The amount of jewellery that would typically be owned by an assessee’s family members living in a typical Hindu household is taken into account during the search process. In light of the facts, it is safe to assume that the source of the jewellery described in the circular stands explained, barring any evidence to the contrary from the Revenue. 

In the case of Jerambhai B. Khokharia, Surat v. Department of Income Tax on 5 November 2015, it is abundantly clear that gold jewellery found up to the limit specified 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 owned 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.