Jewellery found during search – How far does CBDT instruction come to the assessee’s rescue in post-search assessments?

Subash Agarwal, Advocate

1. Introduction

CBDT has issued Instruction No. 1916 dated 11th May, 1994 relating to seizure of jewellery in the course of search and seizure action under the Income tax Act, 1961. For ready reference, the same is reproduced hereunder-

“Instances of seizure of jewellery of small quantity in the course of operation under section 132 have come to the notice of the Board. The question of a common approach to situation where search parties come across items of jewellery has been examined by the Board and following guidelines are issued for strict compliance.

  1. In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need to be seized.
  2. In the case of a person not assessed to wealth- tax, gold jewellery and ornaments to the extent of 500 gms. per married lady 250 gms per unmarried lady and 100 gms. per male member of the family, need not be seized.
  3. The authorized officer may having regard to the status of the family and the customs and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/ Commissioner authorizing the search all the time of furnishing the search report.
  4. In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.”

1.1 A perusal of the instruction clearly reveal that the instruction provides guidance to the search party as to how much jewellery the search party shall seize. It is worth noting that CBDT has re-iterated the above position in the Press Release issued as late as on 01.12.2016 wherein it has further clarified that there is no limit on holding of gold jewellery or ornaments by anybody provided it is acquired from explained sources of income including inheritance.

1.2 Plainly speaking the instruction as well as the Press Release has merely stated the extent to which the gold jewelries are required to be seized during search but it is absolutely silent as to whether the benefit of the instruction can be availed during the framing of assessment and the requirement of substantiating the acquisition with cogent evidence can be dispensed with. Further, diamond jewellery has gained popularity over the years. A question arises whether the benefit of the specified weight provided in the instruction can be extended to the diamond jewellery ?

We shall endeavor to answer these questions in this paper.

2. Whether the benefit of the CBDT instruction can be availed during assessment?

2.1 Recently, in Shakun Devi v. JCIT (ITAT Allahabad), ITA No. 573/All/2014, order dated 05.01.2023, ITAT Allahabad held that no addition to the extent of allowable limit as per CBDT circular on account of unexplained investment in jewellery can be sustained.

In this case, search and seizure action took place at the residence / business premises of the assessee and gold jewellery weighting 1,796 grams was found. The assessee explained that the jewellery belonged to the assessee, her two daughters and some of the jewellery belongs to her mother Smt. Indra Devi. The AO did not accept the explanation of the assessee and after allowing credit of the jewellery weighing 500 grams as stridhan of the assessee, the AO treated jewellery of 682 grams as acquired from undisclosed income and made the addition of Rs. 9,49,003/- u/s. 69B of the Act. The CIT(A) granted part relief to the assessee and sustained the addition in respect of jewellery of 499.85 grams as against 682 grams.

Hon’ble ITAT held that the lower authorities have allowed the credit of only 500 grams jewellery on account of stridhan of the assessee whereas as per the CBDT Circular No. 1916 dated 11th May, 1994, the gold jewellery and ornaments to the extent of 500 grams per married lady, 250 grams per unmarried lady and 100 grams per male member of the family need not to be seized. If the full benefit of this Circular is given to the assessee, then the gold jewellery of 1100 grams falls in the ambit of the jewellery and ornaments not to be seized and consequentially not required any explanation of source of acquisition. In view of the above facts and circumstances of the case, if the undisputed quantity of the jewellery / gold bars of 623 grams as well as the benefit of the CBDT Circular dated 11.05.1994 in respect of 250 grams Gold jewellery of each daughter and 100 grams for the husband of the assessee is given, then no addition on account of unexplained investment in the jewellery is called for. The addition sustained by the CIT(A) on account of 499.85 grams jewellery was liable to be deleted.

Thus, not only the requirement of production of evidence of acquisition of jewellery from explained source was dispensed with, even the benefit of the instruction was extended to the possession of gold bars.

2.2 Very recently, as late as in January 2024, ITAT Jodhpur, in the case of Ashok Jain vs DCIT (ITA Number 29 /Jodh/2023, decision dated 02. 01. 2024) was confronted with this important issue.

The brief facts of the instant case are that a search and seizure action was conducted on 6th October, 2017 on the assessee and the group to which he belong to. The AO made addition in respect of jewellery of 1155.420 grams found from the possession of the assessee on the ground that the assessee could not explain the source of investment in jewellery found during the search. The assessing officer concluded that the CBDT circular no. 1916 dated 11.05.1994 was with regard to seizure of jewellery and not with regard to assessment of unexplained jewellery. In this regard, the assessing officer relied upon the decision of the honourable Madras High Court in the case of VGP Ravi Das versus ACIT (2014) 51 taxman.com 16 (Madras). The assessee filed an appeal before the CIT(A), who gave credit of 600 gms of jewellery – 500 on account of wife and 100 gms on account of assessee as per the limits prescribed by the CBDT circular. He directed the assessing officer to restrict the addition made attributable to jewellery weighing 555.420 gms treating them unexplained and balance 600 gms as explained. Before the hon’ble tribunal it was submitted that the lower authorities failed to consider that 500 gms of jewellery belonged to the deceased mother which was converted into new one and the benefit of the said 500 gms was also required to be given. The assessee further submitted that the circular of the CBDT gives only broader outlines for not seizing jewellery at the time of search but leaves scope for the AO to consider more jewellery as explained over and above the limits given in the circular on the basis of status of the assessee and other surrounding circumstances. Further, the returns filed by the assessee established that he belonged to higher strata of the society. Reliance was placed by the assessee on various court decisions including the jurisdictional High Court of Rajasthan in the case of CIT versus Satyanarayan Patni 2014 366 ITR 325 and various benches of ITAT. In support of the proposition advanced Hon’ble ITAT accepted the contention of the assessee and deleted the entire  Jewellery found during search – How far does CBDT instruction come to the assessee’s rescue in post-search assessments? addition made on account of jewellery, holding as under –

“13. In majority of the decisions, it has been held unanimously that the parameters of CBDT instruction are to be applied during the course of assessment proceeding also and jewellery to that extent requires to be considered as explained. In view of this the decisions of majority of High Courts would prevail over the decision of the Madras High Court and citation referred by the Ld. DR, although they are distinguishable on facts of the present case. It is settled principle of law that if there are divergent opinions on the same issue, the one which is favourble to the assessee has to be followed. In this case the decisions of High Court of Rajasthan, Allahabad, Gujarat and also of benches of ITAT of Delhi, Mumbai and Chandigarh being favorable to the assessee would need to be followed. It is settled law that If there are divergent opinions on the same issue, the one which is favorable to the assessee has to be followed and it gets support from the principle laid down by the Hon’ble Apex Court in the cases of CIT v. Vegetable Products (SC) 88 ITR 192; CIT Strawboard Manufacturing Ltd. (SC) 177 ITR 431 and CIT v. A.J. Abraham Anthrapar (2004) 268 ITR 417. Thus, ground no. 1 and 2 are allowed.” 

2.3 More decisions

  1. Hon’ble Delhi High Court in the case of Ashok Chaddha [2011] 14 taxmann.com 57 has accepted the jewellery of 906.60 grams in the case of married lady even without documentary evidence. The court stated that collecting jewellery of 906.900 grams by a woman in a married life of 25-30 years is not abnormal. The court has held that it is a normal custom for woman to receive jewellery in the form of “stree dhan” or on other occasions such as birth of a child etc.
  2. Hon’ble Delhi High Court re-iterated the above position in the case of Sushila Devi [2016] 76 taxmann.com 163 following its earlier decision in the case of Ashok Chaddha and has held that the gold jewellery which is acquired through gifts made by relatives and other family members over a long period of time, is in keeping with prevailing customs and habits.
  3. Hon’ble Rajasthan High Court in the case of CIT v. Satyanaran Patni [2014] 366 ITR 0325 held that the CBDT had clearly provided prescribed limit of jewellery that will not be seized. It would mean that taxpayer, found with possession of such jewellery, will also not be questioned about its source and acquisition.
  4. In Ghanshyamdas Johari’s case [2014] 41 taxmann.com 295, Hon’ble Allahabad High Court held that if one goes with CBDT’s Instruction No. 1916, dated 11.05.1994 and the ratio laid down in case of Smt. Pati Devi v. ITO [1999] 240 ITR 727 (Kar.) then a married lady of reputed family is expected to own 500 gms of ornaments. Therefore, jewellery found in possession to that extent could not be treated as undisclosed investment.
  5. In Mrs. Divya Devi v. ACIT, ITA No. 6397/ Del/2012, order dated 16.05.2014, Hon’ble Delhi ITAT, observed that though the CBDT Instruction No. 1916, dt. 11.05.1994 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 family members of an assessee belonging to an ordinary Hindu household. In the circumstances, unless the Revenue shows anything to the contrary, it can safely be presumed that the source to the extent of the jewellery stated in the circular stands explained.
  6. In Smt. Neena Syal, 70 ITD 62, Hon’ble ITAT Chandigarh Bench and in Mrs. Nawaz Singhania v. DCIT, Hon’ble ITAT Mumbai Bench held that the jewellery of the assessee which is not seized in accordance with Instruction No. 1916 dated 11.05.1994 shall be treated as deemed explained. This view gets further support from the decision of Special Bench of Ahmedabad ITAT in the case of Rameshchandra R. Patel reported in 89 ITD 203.

3. Whether explained jewellery is required to be reduced from the quantity specified in the instruction?

In the case of Shri Ram Prakash Mahawar v. DCIT (ITAT Jaipur), [2020] 115 taxmann. com 241 (Jaipur  – Trib.), facts of the case were that during course of search and seizure, gold and silver jewelleries were found from assessee’s residential premises. In the assessment proceedings, assessee claimed benefit of CBDT Instruction No. 1916 to the extent of 850 gms of jewellery in hands of his wife, daughter and himself. In excess of said amount, he also claimed benefit of gold jewellery of 343.328 gms that were purchased and recorded in books of account. Relevant purchase bills were also found during search. The issue before the ITAT was whether CBDT Instruction No. 1916 allows specific quantity of jewellery received by various family members on occasion of marriages and other social and customary occasions which assessee is not required to explain. The answer was given in favour of the assessee. ITAT held that since jewellery over and above weight allowed in CBDT instruction was explained by proof of documents of acquisition and same was declared/recorded in books of account of assessee, same had to be allowed separately as explained jewellery.

4. Where gross weight of jewellery disclosed in regular returns (WT) was in excess of gross weight of jewellery found in search.

In Mrs. Nawaz Singhania v. DCIT [2017] 88 taxmann.com 327 (Mumbai – Trib.), it was held that where gross weight of jewellery disclosed by family in their regular returns was in excess of gross weight of jewellery found in search, no seizure was possible and, thus, no addition to income would consequently be permissible merely because there was frequent remaking of old jewellery into new designs depending on needs of family as per community customs and practices of not repeating same design again in another function.

5. Position in the case of diamond studed jewellery

In the case of Kumkum Kanodia v. DCIT, ITA No. 5260/Del/2014 dated 20.11.2018, it was held that Gross weight of jewellery including gold as well as diamonds and other precious stones, should not be seized, if they do not weigh by more than the prescribed limit as per the above stated Instruction.

6. Benefit of the Instruction accorded to silver articles/utensils 

In case of SHRI DINKAR LAXMAN MUJUMDAR v. DCIT, ITA No: 593/Ind/2017 dated 18.10.2018, Indore ITAT has allowed benefit to the silver article found during the course of search considering the customs of the Indian culture.

7. Conclusion

Indians’ obsession with gold is a well known fact. It is a fun fact that Indian household accounts for 11 % of the world’s stock of gold/gold jewellery. Therefore, in any search, some amount of jewellery is bound to be found. However, it is difficult to produce cogent evidence in support of the acquisition of jewellery since jewelleries are acquired during birthdays and marriages and through inheritance. It is heartening to note that the courts and various benches of ITAT have, by and large, taken a liberal view rather than a pedantic approach. Hopefully the trend will continue.