2018 (1) TMI 21 - AT - Income Tax

Addition on account of jewellery u/s. 69A - CBDT in their Instruction 1916 dated 11/05/1994 gave powers to the department of taking into account the status of the family, customs and practices of the community to which the family belongs - Held that - The claim of gifts has been there before assessing officer and therefore the argument that before CIT(A) in earlier submission this claim was not put up carries no weight for the purpose of dismissal of the claim itself. And, as for Wealth tax returns, it needs to be understood that there is always a cyclical kind of rotation between the item being re-made, gifts received etc. This is recognized by the CBDT in their Instruction 1916 dated 11/05/1994 when they gave powers to the department of taking into account the status of the family, customs and practices of the community to which the family belongs. Therefore rejection in the manner done by the appellate authority is not justified at all. The CBDT Instruction 1916 dated 11th May 1994, in particular clause (iii) has to be looked into in background perspective of Raymond Group to which assessee belongs. The assessee has to attend social gatherings. The family functions are conducted on large scales and the list of invitees again is the cream of the society. A necessary concomitant is remaking of the jewellery; for repetition of the same items in any Indian society, including that of assessee, is bound to be looked down upon. Another necessary corollary is the spate of gifts that are received and, frequently, these are ornaments and jewellery, often high value items. Keeping the status of assessee s family in mind as well as customs and practices of the community to which the family belongs as detailed in preceding paragraphs/ the benefit of CBDT Instruction 1916 dated 11th May 1994, is warranted for assessee. No merit for the addition so made on account of Gold and Diamond jewellery. - Decided in favour of assessee

Issues Involved:
1. Addition of ?22,57,632 on account of jewellery under Section 69A of the Income Tax Act, 1961.
2. Validity of seizure and assessment of jewellery based on CBDT Instruction No. 1916 dated 11.05.1994.

Issue-Wise Detailed Analysis:

1. Addition of ?22,57,632 on account of jewellery under Section 69A of the Income Tax Act, 1961:

The primary issue in this appeal concerns the addition of ?22,57,632, which was upheld by the CIT(A) as undisclosed jewellery under Section 69A of the Income Tax Act, 1961. The jewellery found during the search operation did not match the items disclosed in the valuation report of the year 2000, which formed the basis of the Wealth Tax returns of the assessee. The assessing officer conducted an item-by-item tally to reach this conclusion. However, the jewellery found during the search belonged to three members of the family, but only one inventory was drawn without identifying ownership.

The assessee argued that the jewellery found was within the declared limits in the Wealth Tax returns and valuation reports, which showed a total holding of 3124.81 grams, while the jewellery found during the search was 2997.50 grams. Therefore, no addition should have been made as the gross weight of declared jewellery exceeded the gross weight of jewellery found during the search.

2. Validity of seizure and assessment of jewellery based on CBDT Instruction No. 1916 dated 11.05.1994:

The assessee contended that as per CBDT Instruction No. 1916 dated 11.05.1994, no jewellery should have been seized or added to the income if the gross weight of the jewellery found did not exceed the declared weight in the Wealth Tax returns. This instruction was intended to ensure that jewellery within the declared limits should not be treated as unexplained for the purposes of the Income Tax Act.

The Special Bench of Ahmedabad ITAT, in the case of Rameshchandra R. Patel (89 ITD 203), explained that the instruction implied that jewellery within the declared limits should be treated as explained. Similarly, the Hon'ble Gujarat High Court in Ratanlal Vyaparilal Jain (339 ITR 351) and the Hon'ble Karnataka High Court in Smt. Patidevi (240 ITR 727) upheld that jewellery within the prescribed limits should not be added to income, recognizing customs prevailing in Hindu society.

The ITAT Mumbai, in cases like Rafiq Mohd. Nazir Shaikh (ITA No. 465/Mum/2012) and Harak Chand N. Jain (101 Taxman 324), followed this premise, treating jewellery within the declared limits as explained. The Hon'ble Allahabad High Court in Ghanshyamdas Johari (41 Taxmann.com 295) also confirmed that no addition could be made if the jewellery was within the parameters defined by the Circular.

The Tribunal noted that the assessing officer should have compared the gross weight of the jewellery instead of an item-by-item comparison. The CBDT Instruction 1916 required the assessing officer to consider the gross weight of the jewellery, which he failed to do, resulting in undue tax upon the assessee. The Tribunal emphasized that justice must be done in a quasi-judicial manner, as held by the Supreme Court in Simon Carves Ltd (105 ITR 212).

The Tribunal found that the objections raised by the assessee regarding the remaking of jewellery, gifts received, and the manner of valuation during the search were acknowledged but dismissed without proper reasoning. The CIT(A) also dismissed the claim of gifts without justifiable grounds.

Considering the status of the family, customs, and practices of the community, the Tribunal concluded that the benefit of CBDT Instruction 1916 dated 11th May 1994 should be extended to the assessee. Consequently, the Tribunal found no merit in the addition made on account of gold and diamond jewellery.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that no addition should have been made on account of gold and diamond jewellery, as the jewellery found was within the declared limits in the Wealth Tax returns, and the CBDT Instruction No. 1916 dated 11.05.1994 warranted treating the jewellery as explained. The order was pronounced in the open court on 22/12/2017.

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