Old Jewellery found in Locker can’t be treated as Undisclosed Income: ITAT deletes Penalty [Read Order]

In an assessee-friendly ruling, the Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has held that the old jewellery found in the locker of the assessee and the family members cannot be treated as undisclosed for the purpose of levying penalty.

The department recovered some jewellery from the assessee during the course of search proceedings and brought the same under the head ‘undisclosed income’ by observing that it represents the bullion and valuable articles and, therefore, in the absence of the same found recorded in the books of account of the assessee it is undisclosed income as per the definition provided under section 271AAB of the Act. Accordingly, penalty under said provision was levied.

The assessee submitted that no incriminating material was found during the course of search and the disclosure was taken only on the basis of the valuation of jewellery at current rate instead of the actual cost of acquisition of the jewellery. It was also submitted that considering the status of the assessee’s family and the number of family members, the jewellery found during the course of search is not abnormal and acquired in the long back.

On second appeal, the Tribunal noted that the jewellery found during the course of search and seizure action belongs to the assessee’s family.

“Therefore, once the jewellery was not found to be purchased during the year under consideration, then the same cannot be treated as an undisclosed income for the year under consideration which is specified previous year. The department has not found that the jewellery was purchased or acquired by the assessee and other family members only during the year under consideration. The jewellery belong to the family members of the assessee and found in the locker was old jewellery and, therefore, the valuation of the jewellery for the purpose of computing the undisclosed income by applying the current rates on the gross weight is not permissible,” the Tribunal said.

Deleting the penalty, the Tribunal added that “Hence when the department has not made any efforts to ascertain the year of acquisition of the jewellery and then to apply the rates as prevailing in the year of acquisition and some of the jewellery even not acquired by the assessee or the family members but is inherited, then the manner in which the disclosure is obtained on account of the jewellery would not represent the undisclosed income as defined in the explanation to section 271AAB of the Act. We find that the order passed by the AO under section 271AAB as well as the order of the ld. CIT (A) are silent on the issue of incorrect valuation as well as the timing of acquiring of the personal jewellery of the assessee and the family members. Therefore, in the facts and circumstances of the case, the personal jewellery of the assessee and family members acquired in the past and some part of which was also inherited will not fall in the ambit of undisclosed income.”