The Bangalore Bench of the Income Tax Appellate Authority ( ITAT ) deleted the addition made by the assessing officer (AO) on unexplained jewelry by applying the benefit under the Central Board of Direct Taxes ( CBDT ) instruction 1961, which permits jewelry possession for other family members.
A search and survey operation was conducted at the premises of Gemini Professional Services Private Limited, Avinash Aradhya ( assessee ) was present during the search. During the search of the assessee’s bank lockers, gold weighing 5213.78 grams was found. Out of this, 1511.65 grams were seized by the search team because they were unexplained.
During the assessment proceedings, the assessee submitted that the gold jewelry was his wife’s and mother’s stree dhan. The assessee claimed that he already disclosed a substantial amount of jewelry in his income tax return and his wife’s income tax return.
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The assessee also cited CBDT Instruction No. 1916, dated 11th May 1994, which permits family members to hold specific quantities of gold: 500 grams for each married female, 250 grams for each unmarried female, and 100 grams for each male member.
However, the assessing officer rejected the submission and added Rs. 44,77,752 to the assessee’s total income under section 69A of the Income Tax Act, 1961. Aggrieved by the AO’s order, the assessee appealed before the Commissioner of Income Tax (Appeals) CIT(A).
The CIT(A) confirmed the addition, referring to a Press Release dated 01.12.2016, which clarified that the CBDT Instruction No. 1916 does not provide a blanket exemption for all gold jewelry found during searches. Instead, it applies only in specific circumstances and for reasonable quantities.
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The assessee challenged the CIT(A) order before the Bangalore Bench of ITAT arguing that 1450 grams of gold should not be considered unexplained as it fell within the permissible limits of CBDT Instruction No. 1916.
The assessee’s counsel submitted that the family had substantial income over the years, making the claim for the gold jewelry credible and the assessee’s mother had also disclosed gold under the VDIS scheme, 1997 supporting the claim that the gold was from legitimate sources.
On the contrary, the revenue’s counsel argued that the assessee failed to explain the source so it should be considered an unexplained possession and supported the orders of the AO and CIT(A).
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The two-member bench comprising George George K (Vice President) and Waseem Ahmed (Accountant Member) observed that the AO had not properly considered the benefit of CBDT Instruction No. 1916 for exempting family-held gold, and the benefit should have been extended to all family members.
The tribunal referred to the Jaipur Tribunal ruling in the case of Ram Prakash Mahawar vs. DCIT, where it was held that gold jewelry acquired through legitimate means and documented with proof of purchase could not be classified as unexplained, regardless of CBDT Instruction limits.
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Therefore, the tribunal deleted the addition of ₹44,77,752 made by the AO. The assessee’s appeal was allowed.
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