2012 (10) TMI 782 - AT - Income Tax

Unexplained jewellery found in the lockers - search - Held that - Central Board of Direct Taxes Circular No. 1916, dated May 11,1994, lays down guidelines for seizure of jewellery and ornaments in the course of search, the same takes into account the quantity of jewellery which would generally be held by the family members of an assessee belonging to an ordinary Hindu household - not to seize gold jewellery, if it is found to the extent of 500 grams and claimed to be of a married lady. Similarly, to the extent of 250 grams claimed to be belonging of a unmarried lady and 100 grams claimed to be belonging of male member, than no seizure is to be affected. In the present case value of jewellery surrendered by assessee is 738.570 grams of Rs. 5,64,674/-. The total jewellery treated to be explained one is 2888 grams as per the circular & rest of the jewellery is to be treated as unexplained - First Appellate Authority has erred in deleting the total value of jewellery , thus the total addition required to be made by the AO is value of jewellery i.e 139 gms 234 gms by taking the value at 755 per gm - partly in favour of revenue.

Issues:
1. Addition of unexplained jewellery in lockers at the time of search.
2. Application of circular issued by the Board regarding seizure of jewellery.
3. Allocation of jewellery among family members for tax purposes.
4. Assessment of value of unexplained jewellery.

Analysis:

Issue 1: Addition of unexplained jewellery
The case involved a Search & Seizure operation where jewellery was found in lockers. The Assessing Officer directed the assessee to explain the source of acquisition of the jewellery. The appellant contended that a portion of the jewellery belonged to her husband, who had offered a sum for taxation. The CIT(A) deleted the addition, stating that the balance jewellery belonged to the husband. The Tribunal considered the circular issued by the Board, which guided officials not to seize jewellery up to certain limits based on family members. The Tribunal adopted a pragmatic approach, considering the difficulty in providing evidence for all jewellery. It was decided that a portion of the jewellery was explained and should not be added to the income.

Issue 2: Application of circular by the Board
The circular issued by the Board provided guidelines for not seizing jewellery found during searches, up to specified limits based on family members. The Tribunal and High Courts had previously accepted the applicability of this circular, considering customary practices in Hindu families regarding gifting of jewellery during social functions. The Tribunal found that the jewellery held by family members was within the limits specified in the circular and deleted the additions based on this reasoning.

Issue 3: Allocation of jewellery among family members
In one locker, the jewellery was allocated among family members, with the assessee claiming a portion for taxation benefits. The Assessing Officer added the value of the balance jewellery to the assessee's income, but the CIT(A) accepted the contentions of the assessee and deleted the addition. The Tribunal modified the order, directing the Assessing Officer to add the value of certain grams of jewellery to the total income of the assessee.

Issue 4: Assessment of value of unexplained jewellery
The Tribunal assessed the value of unexplained jewellery found in the lockers, considering the portions that were explained and those that remained unexplained. It directed the Assessing Officer to add the value of specific grams of jewellery to the total income of the assessee, based on the rate per gram.

In conclusion, the Tribunal partly allowed the appeal of the revenue, modifying the orders regarding the addition of unexplained jewellery and the application of the circular by the Board.

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