2018 (2) TMI 101 - AT - Income Tax

Addition on account of ornament jewellery and silver found during the course of search - guidelines in the matter of seizure of jewellery - Held that - CBDT instructions in our view provides a guideline to the search conducting team that no seizure should be made of the jewellery and ornaments found during the course of search proceedings u/s 132 of the Act if the same have been duly declared in the wealth tax returns filed by the tax payer or where such ornaments are within the prescribed limits of 500 250 or 100 grams as stated in the said instructions. Out of total seized jewellery of 22, 65, 625/- (being the value of seized jewellery as on the date of search) we find that the assessee has been successful enough to explain the jewellery worth 17, 59, 500/- on account of following; (i) Diamond jewellery belonging to assessee s wife purchased in 1993 for 2, 16, 000/- (duly shown in the balance sheet) which values at 10, 77, 000/- as on date of search. (ii) secondly the Gold jewellery weighing around 350 grams which the assessee received as per will of her grand mother in 1993 which is also shown in the balance sheet at a cost of 1, 60, 930/-. We have already accepted that the jewellery worth 17, 59, 500/- was purchased in the earlier years as well as some part received by WILL . However as regards the remaining gold jewellery silver items and diamond jewellery valuing 5, 06, 000/- there is no specific reply given by the assessee. We therefore looking to the fact that assessee was living with his mother and wife and also in view of CBDT Instruction No.1916 dated 11.5.94 discussed above sustain a total addition of 2, 50, 000/- for unexplained jewellery. Accordingly the appeal of the assessee is partly allowed.

Issues Involved:
1. Validity of reopening the case under Section 147 of the Income Tax Act.
2. Addition of ?22,65,625/- for ornaments, jewellery, and silver found during the search.

Issue-wise Detailed Analysis:

1. Validity of Reopening the Case under Section 147 of the Income Tax Act:

The assessee challenged the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act. The counsel for the assessee argued that the reassessment proceedings were invalid and should be quashed. However, the Departmental representative supported the order of the lower authorities.

The Tribunal observed that a search under Section 132 was conducted at the residential premises of the assessee, who is the Director of Lilason Industries. During the search, jewellery valued at ?22,65,625/- was found, and the assessee failed to correlate the source of the jewellery. The Tribunal, following the judgments referred by the CIT(A), upheld the validity of the reassessment proceedings. It was noted that Section 147 enables the AO to reopen an assessment if there is a "reason to believe" that income has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The Tribunal cited various judicial precedents, including decisions from the Supreme Court, to support the view that the AO had sufficient reason to believe that income had escaped assessment. Therefore, the reopening of the assessment was held to be valid, and Ground No. 1 of the assessee was dismissed.

2. Addition of ?22,65,625/- for Ornaments, Jewellery, and Silver Found During the Search:

The assessee contested the addition of ?22,65,625/- for gold ornaments, diamond jewellery, and silver found during the search. The counsel for the assessee argued that part of the jewellery was received through a "WILL" from the assessee's mother-in-law in 1993, and some jewellery was purchased by the assessee's wife. It was also contended that the jewellery included items owned by the assessee's mother and that the total jewellery was within the permissible limits as per CBDT Instruction No. 1916 dated 11.05.1994.

The Tribunal referred to the CBDT Instruction No. 1916, which provides guidelines for the seizure of jewellery during search operations. According to these guidelines, jewellery within specified limits (500 grams for a married lady, 250 grams for an unmarried lady, and 100 grams for a male member) should not be seized. The Tribunal found that the assessee had successfully explained jewellery worth ?17,59,500/- based on the evidence provided, including the purchase by the assessee's wife and the jewellery received through a "WILL."

However, for the remaining unexplained jewellery worth ?5,06,000/-, the Tribunal noted that there was no specific reply from the assessee. Considering the CBDT guidelines and the fact that the assessee was living with his mother and wife, the Tribunal sustained an addition of ?2,50,000/- for unexplained jewellery. Consequently, the appeal of the assessee was partly allowed, reducing the addition from ?22,65,625/- to ?2,50,000/-.

Conclusion:

The Tribunal upheld the reopening of the assessment under Section 147 of the Income Tax Act, dismissing Ground No. 1. Regarding the addition for jewellery, the Tribunal partly allowed the appeal, reducing the addition from ?22,65,625/- to ?2,50,000/-. The order was pronounced in the open Court on 19.01.2018.

← Previous Next →