2014 (1) TMI 1836 - AT - Income Tax

Undisclosed jewellery u/s 69A - search & seizure operation - exemption in regard to Streedhan - applicability to CBDT circular No.1916 dated 11.5.1994 which contains guidelines to be followed in the matters of seizure of gold and jewellery during the course of search action - Held that - The quantum and the worth of the gifts also depend upon the social as well as financial status not only of the donor but of the donee also. As per CBDT circular No.1916 dated 11.5.1994 which contains guidelines to be followed in the matters of seizure of gold and jewellery during the course of search action, it is apparent that in 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. Clause (iii) of the said guidelines wherein it has been mentioned that the authorized 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. In the case of CIT vs. Ratanlal Vyaparilal Jain (2010 (7) TMI 769 - Gujarat High Court) has held that though the said circular had been issued for the purpose of non seizure of the jewellery, but the basis for the same recognizes customs of gifts of jewellery by the relatives and friends on certain occasions such as marriages, birthdays, marriage anniversary and other festivals. In such circumstances, unless the Revenue shows anything to the contrary, it can be safely presumed that source to the extent of the jewellery stated in the circular stands explained. - Decided in favour of assessee

Summary

Issues:
1. Interpretation of CBDT Circular No.1916 regarding seizure of unexplained jewellery.
2. Treatment of jewellery found during search & seizure operation as undisclosed jewellery.
3. Application of CBDT circular guidelines and legal precedents in determining the source of jewellery.
4. Justification for the decision based on customs and practices of gifting jewellery.

Analysis:

Issue 1: Interpretation of CBDT Circular No.1916
The appeal involved a dispute over interpreting CBDT Circular No.1916 dated 11.5.1994, which provides guidelines for the seizure of unexplained jewellery. The Revenue contended that jewellery considered unexplained by the Assessing Officer cannot be deemed explained merely based on the circular's contents. The CIT(A) relied on this circular to determine the status of jewellery found during the search & seizure operation.

Issue 2: Treatment of Jewellery as Undisclosed
During the search, gold and diamond jewellery were found, with the assessee explaining that it belonged to his family members. The Assessing Officer allowed exemptions based on family status and circular No.1914, treating the remaining jewellery as undisclosed under section 69A of the Income Tax Act. The CIT(A) disagreed with this treatment, leading to the Revenue's appeal.

Issue 3: Application of Circular Guidelines and Legal Precedents
The CIT(A) referenced CBDT Circular No.1916 and the Gujarat High Court case of "CIT vs. Ratanlal Vyaparilal Jain" to support the decision. The circular exempts certain quantities of jewellery from seizure based on family members' status and customs. The High Court's ruling emphasized the recognition of gifting customs on occasions like marriages and birthdays, presuming the explained source of jewellery as per the circular.

Issue 4: Justification Based on Gifting Customs
The Tribunal considered the financial status of the assessee, customary practices of gifting jewellery, and the CBDT circular's provisions. It noted that gifts of jewellery are common on various occasions and are influenced by social and financial statuses. The decision highlighted the presumption of explained sources for jewellery as per the circular and legal precedents, ultimately dismissing the Revenue's appeal.

This detailed analysis showcases the thorough consideration of legal provisions, circular guidelines, and precedents in resolving the issues raised in the appeal regarding the treatment of jewellery found during the search & seizure operation.