Abstract
The Article aims at discussing some of the pertinent income-tax issues prevailing in the Gem & Jewellery industry. The article will be useful for businesses, consultants, chartered accountants and advocates connected with the Gem & Jewellery industry. The Article considers and analyses important judicial pronouncements relevant to the Gem & Jewellery industry.
Table of Contents
Abstract
- Introduction
- The Income-tax Law
- Businesses
- Investors/Users
- Issues for consideration
- Associations in the Gem & Jewellery Industry
- Special Economic Zones & Export Oriented Unites
- Bogus Purchases & Unexplained Income
- Certain Deductions
- Transfer Pricing
- Chapter VI-A Deductions
- Treatment of Wastage
- Survey, Search & Seizure cases
- Dénouement
1. Introduction
In January 2021, India’s gold & diamond industry added approximately 7.5 percent to India’s GDP & 14 percent to India’s total produce exports, the gem & jewellery segment is likely to employ approximately 8.23 Mn people by 2022, from approximately 5 Mn in the year 2020. According to MMR study report, the Indian Gem & Jewellery market was valued at
25.30 Bn in the year 2020 with a CAGR of 18.46 per cent over past five years.
According to the data for 2020, Indian women currently own 21733 tonnes of gold. This is approximately 11 percent of the Worlds gold. Further, diamonds were first mined in India, For centuries, India was the only place one could find these precious stones. The earliest known reference to diamond is a Sanskrit manuscript, dated from 320-296 B.C. This shows the history of India vis-à-vis the Gem & Jewellery Industry.
Given the precious nature of stones and ornaments. These are always in the radar of the Income-tax Department, as such precious stones and gold bars can be misused to conceal income.
2. The Income-tax Law
2.1. Businesses
Taxpayers engaged in the business of trading, manufacturing, mining, processing, cutting, polishing et cetera of gem and jewellery have to offer the income under the head “Profits & Gains from Business or Profession”
Where the business is a Partnership Firm or a Limited Liability Partnership, the profits will be taxed at the rate of 30 per cent plus applicable surcharge and cess.
In case of a Company, the applicable rate shall be 25 per cent plus applicable surcharge and cess. A domestic company, subject to conditions mentioned under section 115BAA of the Income- tax Act, 1961(Act) can avail the reduced tax rate of 22 per cent plus applicable surcharge and cess. Similarly, a domestic company satisfying the conditions mentioned under section 115BAB of the Act can avail the reduced tax rate of 15 per cent plus applicable surcharge and cess.
Vide Finance Act, 2012, (2012) 345 ITR (St) 001 section 206C(1D) of the Act was introduced. According to the Memorandum explaining the provisions of the Finance Bill, 2012 (2012) 342 ITR (St) 234, Under the existing provisions of the Income-tax Act, tax is required to be collected at source by the seller at the specified rate on certain goods like alcoholic liquor, tendu leaves, scrap etc. at the time of sale. In order to reduce the quantum of cash transaction in bullion and jewellery sector and for curbing the flow of unaccounted money in the trading system of bullion and jewellery, it is proposed to provide that the seller of bullion and jewellery shall collect tax at the rate of 1 per cent of sale consideration from every buyer of bullion and jewellery if sale consideration exceeds two lakh rupees and the sale is in cash. This would be irrespective of the fact whether buyer is a manufacturer, trader or purchase is for personal use.
2.2. Investors/Users
Prior to the amendment of 1972, “jewellery” was not an exclusion to “personal effects”, thereby not covered under the definition of “Capital Asset”.
Post amendment, as per section 2(14) of the Act, “jewellery, other than stock in trade, is considered as a capital asset. As per explanation 1 to section 2(14) (ii) of the Act, “jewellery” includes—
- ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;
- precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;
The Hon’ble Supreme Court in the case of H.H. Maharaja Rana Hemant Singhji v. CIT [1976] 103 ITR 61 (SC) on a close scrutiny of the context in which the expression ‘personal effects’ occurs shows that only those effects can legitimately be said to be personal which pertain to the assessee’s person. In other words, an intimate connection between the effects and the person of the assessee must be shown to exist to render them ‘personal effects’. The enumeration of articles like wearing apparel, jewellery, and furniture mentioned by way of illustrations in the definition of ‘personal effects’ also shows that the Legislature intended only those articles to be included in the definition which were intimately and commonly used by the assessee.
The Hon’ble Madras High Court in the case of CIT v. Smt. Saroj Goenka [1983] 140 ITR 88 (Mad) held that loose diamonds could be said to be ‘personal effects’ held by the assessee so as not to attract capital gains tax on their sale.
Therefore, where jewellery is held for more than 36 months from the date of purchase, the same will attract Long term Capital Gains tax and where it is held for less than 36 months, the same will attract Short-term Capital Gains.
Further, it is important to note that, jewellery is included in the definition of property for the purpose of section 56 (2)(x) of the Act which is an anti-abusive provision. Therefore, transfer/ gift of jewellery to any person other than a relative as defined under section 56 of the
Act, for no consideration (gift) or for a short consideration of more than Rs. 50,000/- will attract section 56(2)(x) in the hands of the recipient.
3. Issues for consideration
Some of the issues and controversies pertaining to Income-tax in the Gem & Jewellery Industry are as under:
3.1. Associations in the Gem & Jewellery Industry
As per section 2(15) of the Act, charitable purpose, inter alia, subject to certain conditions, includes he advancement of any other object of general public utility.
The Hon’ble Madras High Court in the case of ACIT v. Madras Jewellers & Diamond Merchants Association [1981] 129 ITR 214 (Mad)(HC) held that where the Assessee association was established for protecting, safeguarding, guiding and furthering interest and welfare of merchants dealing in diamonds, bullion, jewellery, etc., and to create and encourage friendly feeling and unity amongst merchants, the Assessee claimed exemption in respect of income received from survey charges, weighment charges and charges for arbitration; since activities carried on by assessee were for benefit of general public and those were not conducted with a view to make profits assessee was therefore entitled to exemption under section 11 of the Act.
The Hon’ble Bombay High Court in the case of DIT(E) v. Bharat Diamond Bourse [2000] 245 ITR 437 (Bom)(HC) where it was a matter of fact that as a result of setting up of assessee bourse there was substantial increase in diamond exports leading to increased earning of foreign exchange for the country, its predominant activity was to be held to be promotion of trade which was object of general public utility and, therefore, charitable within meaning of section 2(15) of the Act and since it restricted application of its income to its objects only, it was entitled to exemption under section 11 of the Act. However,
the Hon’ble Supreme Court in the case of DIT(E) v. Bharat Diamond Bourse (2003) 259 ITR 280 (SC) held that the Assessee whose principal object was to facilitate diamond trade so that maximum revenue could be earned by way of foreign exchange by the trade and also to make diamond trade more competitive at international level, was an institute established for charitable purpose. Amount lent to without interest will lose the benefit of exemption
The Hon’ble Bombay High Court in the case of DIT v. Bombay Bullion Association Dharamno Kanto Trust [2002] 254 ITR 708 (Bom)(HC)
where Assessee-trust was earning income from weighing activities, popularly known as Dharam Kanta for benefit of public in general; business activities of trust were carried on with assistance of employees under supervision of Committee of Management appointed by Board of directors, who acted for and on behalf of beneficiaries, namely, general public or public at large; it could be said that business activities carried on in manner provided in trust deed were being carried on by beneficiaries of trust, being public, and, thus, there was sufficient and substantial compliance of provision of sub-section (4A)(b) of section 11 of the Act and such assessee-trust was entitled to exemption under section 11(4A) of the Act.
The Hon’ble Income-tax Appellate Tribunal
– Surat Bench in the case of ACIT v. Gujarat Hira Bourse [2021] 130 taxmann.com 355 (Surat- Trib.) Where assessee trust was established with objective to develop world class gems and jewellery park to provide common facilities required to promote exports of diamonds from India and it was not carrying out any trade, commerce or business and only dealt with its members to attain its objects of general public utility, it would not be hit by first proviso to section 2(15) of the Act, hence, benefit of section 11 of the Act could not have been denied.
The Hon’ble Income-tax Appellate Tribunal – Mumbai Bench in the case of Bharat Diamond Bourse v. DIT(E) [2017] 83 taxmann.com 134 (Mumbai) where there was no change in activities of assessee diamond bourse established for promoting diamond export, its registration could not be cancelled on ground that its business receipts exceeded monetary limit specified in proviso to section 2(15) of the Act; conditions specified under section 12AA(3) of the Act was to be fulfilled.
3.2. Special Economic Zones & Export Oriented Unites
In February 2021, India’s gold and diamond export contributed to 14 percent of total merchandise export. Further, the Government has also considered gems and jewellery sector as a focus area for export promotion. A lot of the manufacturing and other ancillary activities pertaining to gems and jewellery are set up in free trade zones.
Firstly, It is pertinent to note that Section 10 AA of the Act was inserted by the Special Economic Zones Act, 2005, with effect from February 10, 2006. Further, Section 51(1) of The Special Economic Zones Act, 2005 (SEZ Act) gives an overriding provision over other laws.
The rule of generalia specialibus non derogant, it is a well settled position in law. i.e. the provisions of a general statute must yield to those of a special one. The same has been upheld by the Hon’ble Supreme Court in the case of Union of India v. India Fisheries (P.) Ltd. [1965] 57 ITR 331 (SC) wherein it was held that If there is an apparent conflict between two independent provisions of law, the special provision must prevail.
The Hon’ble Income-tax Appellate Tribunal – Mumbai Bench in the case of Gitanjali Exports Corpn. Ltd. v. ACIT ITA Nos. 6947 & 6948 of 2011, dated May 8, 2013 (Mumbai-Trib) where the assessee was allowed deduction under Section 10AA of the Act on “Trading activities” as same is covered by definition of “Services” in the SEZ Act.
Similarly, the Hon’ble Income-tax Appellate
Tribunal – Jaipur Bench in the case of DCIT v. Goenka Diamond & Jewellers Ltd [2012] 19 taxmann.com 91 (Jaipur) where the assessee-firm was engaged in the business of trading and manufacturing of precious and semi-precious stones, diamond and studded gold jewellery. It claimed deduction under section 10AA of the Act in respect of profits from the Surat unit. It was held that deduction under section 10AA of the Act is available in respect of trading in nature of re-export of imported goods.
The Hon’ble High Court of Delhi in the case of CIT v. Jayshree Gems & Jewellery [2014] 49 taxmann.com 43 (Delhi) held that Process of jewellery making through job work amounts to manufacturing for purpose of section 10A of the Act.
The Hon’ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd [2011]
330 ITR 175 (Bom)(HC) [Affirmed by the Hon’ble Supreme Court in the case of CIT v. HCL Technologies Ltd. [2018] 93 taxmann.com 33 (SC)] where it was held that for purpose of application of formula prescribed by section 10A(4) of the Act, export turnover in numerator must have same meaning as export turnover which is a constituent element of total turnover in denominator. Since in computing export turnover Legislature has made a specific exclusion of freight and insurance charges, these two items would have to be excluded from total turnover also for purpose of computing exemption under section 10A of the Act.
The Hon’ble High Court of Madras in the case of PCIT v. Jewels Magnum [2020] 120 taxmann. com 316 (Mad)(HC) held that A medallion is also classifiable as a pendant; therefore, assessee could not be denied exemption under section 10AA of the Act on ground that it had violated approval granted by Development Commissioner, Special Economic Zone for manufacturing gold pendants by saying that product manufactured by assessee was described as medallion
The Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of Inter Classic Jewellery (I) (P.) v. ITO [2008] 114 TTJ 402
(Mumbai) where during relevant assessment year, assessee in addition to manufacture of jewellery undertook manufacturing activities for others on job-work basis and received service charges. The Revenue authorities excluded service charges from export turnover holding that said income earned by assessee could not be held to be income from manufacturing activity and, therefore, exemption under section 10A of the Act was not available to said income of assessee. It was held that since there was no difference between activities relating to export business carried on by assessee and process carried on by it for manufacturing jewellery for others under job-work contracts, authorities below were not justified in denying exemption to assessee under section 10A of the Act in respect of service charges.
3.3 Bogus Purchases & Unexplained Income Bogus purchases are illegal means by which, tax payers inflate their expenses, thereby reducing taxable The Central Board of Direct taxes vide Instruction No. 2 of 2008, dated August 22, 2008 has directed all the AOs to accept profit of 6 percent in diamond business.
The Hon’ble Income-tax Appellate Tribunal – Mumbai Bench in the case of DCIT v. Lucent Diamond [2021] 128 taxmann.com 262 (Mumbai
– Trib.) held that where the assessee failed to produce any of suppliers to confirm transactions of purchases shown by it, however, at same time, assessee was in possession of purchase invoices and ledger confirmation as well as PAN of suppliers was also placed on record and payment to suppliers was made through banking channels, Commissioner (Appeals) was justified in restricting addition at rate of 6 per cent on account of bogus purchases.
The Hon’ble Income-tax Appellate Tribunal –
Delhi Bench in the case of ACIT v. PC Jewellers Ltd. [2022] 137 taxmann.com 71 (Delhi – Trib.) where assessee purchased diamonds through commission agent from various parties and Assessing Officer made addition on purchases, as income of assessee on account of inflation of purchase price of diamonds on purchases from accommodation entry providers, Commissioner (Appeals) having considered quantitative details, stock and payment made by assessee with regard to these purchases and retraction letter of alleged entry operator with regard to accommodation of purchase bills having been filed, Commissioner (Appeals) rightly held that disallowance made by Assessing Officer was not valid.
The Hon’ble High Court of Gujarat in the case of Sajani Jewels v. DCIT [2016] 71 taxmann.com 90 (Gujarat) where source of expenditure was very much available since in reasons recorded itself, Assessing Officer pointed out that purchases were made by making cheque payments, section 69C of the Act had no applicability.
The Hon’ble ITAT Ahmedabad Tribunal in the case of Chokshi Hiralal Maganlal v. DCIT [2011] 9 taxmann.com 300 (Ahmedabad – ITAT) where during a survey under section 133A, excess stock of gold and silver ornaments was found. Assessee filed its return wherein excess stock found during survey was included in inventory of closing stock. Assessing Officer opined that said disclosure was not consistent with provisions of sections 69, 69A, 69B & 69C of the Act. Taking above view, Assessing Officer separately added amount of excess stock under section 69B of the Act after reducing same from total income disclosed by assessee. It was held that since excess stock found during survey was not separately and clearly identifiable but was part of mixed lots of stock found at premises which included declared stock as per books also, provisions of section 69B of the Act could not be made applicable and therefore, investment in excess stock had to be treated as business income.
3.4. Certain Deductions
The following are instances of certain deduction or expenses which have been a subject matter of litigation:
Hon’ble Income-tax Appellate Tribunal –
Mumbai Bench in the case of Ramesh D. Murpana v. ACIT [2016] 71 taxmann.com 218 (Mumbai) where the Assessee was engaged in business of dealing in gold and diamond jewellery, He borrowed certain amount for advancing security deposit for taking a shop on leave and license basis on monthly license fee for setting a jewellery outlet as an expansion of existing business and claimed interest on such loan as deduction. It was held that interest on borrowing was incurred for purpose of business and was an allowable revenue expenditure.
Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of DCIT Tribhovandas Bhimji Zaveri [2008] 23 SOT 57 (Mumbai) (URO) where the Assessee-firm claimed deduction of foreign travel expenses incurred on its employees for business of firm, The Assessing Officer disallowed assessee’s claim mainly on ground that assessee-firm was not engaged in export of jewellery and it was a business leader, thus, there was no requirement for such foreign travel. The Ld. Commissioner (Appeals), however, allowed assessee’s claim – The Tribunal held that, even though assessee was a business leader in this line, yet same position could not be maintained unless assessee was aware of latest technologies and designs for jewellery manufacturing, therefore, expenditure incurred on foreign travel in said connection was rightly allowed as business expenditure.
Hon’ble Income-tax Appellate Tribunal – Mumbai Bench in the case of Brightest Circle Jewellery (P.) Ltd. v. ACIT [2012] 24 taxmann.com 130 (Mumbai) where owner of brand of diamond licensed it to another company which in turn sub-licensed it to assessee and assessee sold diamond under said brand name, payments made by assessee to intermediary towards
sales promotion expenses would be revenue expenditure.
Hon’ble Income-tax Appellate Tribunal – Mumbai Bench in the case of Fine Jewellery (India) Ltd. v. ACIT [2013] 30 taxmann.com 323 (Mumbai – Trib.) [affirmed by the Hon’ble Bombay High Court in the case of CIT v. Fine Jewellery (India) Ltd. [2015] 55 taxmann.com 514 (Bom)(HC)] held that Expenditure incurred by assessee, a jeweller, on creation of brand was rightly allowed as deferred revenue expenditure.
3.5. Transfer Pricing
It is known that there is a practical difficulty in furnishing segment wise Profit & loss account of AE segment and non-AE segment in the diamond industry.
If Ld. TPO was not satisfied with benchmarking of assessee under TNMM, nothing prevents them from rejecting assessees’s benchmarking and determining arm’s length price of transaction with AEs independently by applying any one of prescribed methods. However, if the Ld. TPO has accepted benchmarking of assessee under TNMM, imposition of penalty under section 271G of the Act is to be deleted.
Further, Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of Dty CIT Decent Dia Jewels (P.) Ltd. [2020] 117 taxmann. com 358 (Mumbai – Trib.) where TPO accepted benchmarking of assessee under TNMM to be at ALP, imposition of penalty under section 271G for non-furnishing of segmental profitability of AE and non-AE transactions was to be deleted.
Further, Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of CIT v. Leo Schachter Diamonds India (P.) Ltd. [2020] 116 taxmann.com 994 (Mumbai – Trib.) where the Assessee submitted that it was not practical to identify and bifurcate stock, cost and revenue between AE and non-AE segment, TPO opined that the non-furnishing of such information thwarted department from examination of correctness of ALP and concluded that since assessee failed to maintain documentation as required under clauses (g) and (h) of Rule 10D(1) read with section 92D(3) of the Act and penalty was to be imposed under section 271G of the Act. It was held that where no TP adjustments was made in case of assessee- company, penalty under section 271G of the Act could not be levied.
Further, Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of ACIT D. Navinchandra Exports (P.) Ltd. [2017] 87 taxmann. com 306 (Mumbai – Trib.) wherein it was held that where TPO directed assessee-diamond merchant to furnish segmental profitability for AE transactions and non-AE transactions, since practical difficulty in furnishing segment wise Profit & loss account of AE segment and non-AE segment was expressed by diamond industry, penalty under section 271G was not called for.
Further, Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of CIT v. K. Girdharilal International Ltd [2019] 111 taxmann. com 322 (Mumbai – Trib.) where it was held that where assessee made substantial compliance with requirements of filing all major information called for by TPO and, accordingly, ALP was accepted by TPO, penalty under section 271G of the Act was rightly deleted by Commissioner (Appeals).
Further, Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of CIT v. Asian Star Company Ltd [2020] 116 taxmann.com 448 (Mumbai – Trib.) where it was held that the department had accepted the method adopted by assessee to benchmark its international transaction in past and even during year under consideration no adjustment was made under section 92C of the Act in respect of international transactions with its AE. The Ld. TPO erred in levying penalty under section 271G of the Act for not furnishing segmental profitability of AE transactions and non-AE transactions.
Further, Hon’ble Income-tax Appellate Tribunal
-Mumbai Bench in the case of CIT v.
Ankit Gems (P.) Ltd [2019] 106 taxmann.com 243 (Mumbai – Trib.) where TPO had accepted benchmarking done by assessee under TNMM and no variation/adjustment was made by him to arm’s length price, imposition of penalty under section 271G of the Act would be unsustainable.
The practical difficulty in furnishing segment wise Profit & loss account of AE segment and non-AE segment was expressed by diamond industry and the same has been observed by the jurisdictional Tribunal in the case of D. Navinchandra Exports (P.) Ltd. (Supra).
Hon’ble Income-tax Appellate Tribunal –
Mumbai Bench in the case of ACIT v. Dilipkumar v. Lakhi [IT Appeal No. 2142 (M) of 2017, dated 2-8-2018] where it was held that that the assessee may not have effected absolute compliance to the directions of the TPO and furnished all the requisite details as were called for by him on account of practical difficulties as had been deliberated by us at length hereinabove, but however, in the backdrop of our aforesaid observations, we are of the considered view that the failure to the said extent on the part of the assessee to comply with the direct ions of the TPO can safely be held to be backed by a reasonable cause, which thus would bring the case of the assessee with the sweep of section 273B of the Act.
The above decision of the jurisdictional Tribunal was followed by jurisdictional Tribunal in the case of Dy. CIT v. Firestone International (P.) Ltd. [IT Appeal No. 5304 (Mum.) of 2016, dated 1-12- 2018] and Dy. CIT v. Interjewel (P.) Ltd. [IT Appeal No. 5628 (M) of 2016, dated 1-11-2018]
3.6. Chapter VI-A Deductions
Chapter VI-A allows certain deductions in respect of certain incomes on the gross total income of an assessee. Some of these deductions are to incentivise or boost certain segment of an industry based on its activities, location et cetera.
The Hon’ble Supreme Court in the case of CIT v. Gem India Mfg. Co. [2001] 249 ITR 307 (SC) held that cutting and polishing of diamonds does not amount to manufacture or production of goods for purpose of section 80-I of the Act.
The Hon’ble High Court of Jammu & Kashmir in the case of PCIT v. Lakesh Handa [2017] 399 ITR 305 (J&K)(HC) where it was held that conversion of standard 24 carat gold into 22 carat gold jewellery or ornaments amounted to manufacture or production for purpose of deduction under section 80-IB of the Act.
The Hon’ble Supreme Court in the case of Heaven Diamonds (P.) Ltd. v. CIT v. CIT (2014) Civil Appeal No.9936 of 2011 dated November 18, 2011. (SC) where The assessee is engaged in the business of cutting and polishing rough diamonds. The Ld. AO disallowed the deduction under section 80IB of the Act following the judgment in CIT v. Gem India Mfg. Co. Ltd. 249 ITR 307 (SC). The appeal was dismissed by CIT(A), Tribunal and High Court. Aggrieved by the order of High Court the assessee filed SLP before the Supreme Court. Allowing the Civil Appeal the Court observed the Tribunal ought to have examined the process undertaken by the assessee, and High Court ought to have set aside the matter. The Apex Court directed the matter to the Tribunal to consider whether the process undertaken by the assessee constituted ‘manufacture”. Order of High Court and Tribunal set aside and matter remitted to the Tribunal for de novo assessment.
The Hon’ble Income-tax Appellate Tribunal – Mumbai Bench in the case of Flawless Diamond (India) Ltd. v. ACIT [2014] 45 taxmann.com 67 (Mumbai) where it was held that Cutting and polishing of diamond amounts to manufacturing or production of article or thing and, therefore, an assessee, engaged in said activity, is entitled to claim deduction under section 80-IC of the Act.
3.7. Treatment of Wastage
The Hon’ble Income-tax Appellate Tribunal
-Hyderabad Bench in the case of DCIT Sanghi Jewellers (P.) Ltd. [2013] 40 taxmann. com 152 (Hyderabad – Trib.) held that Loss of gold and silver due to wastage in process of manufacturing jewellery at 5 per cent to be considered as reasonable and same to be allowed.
The Hon’ble Income-tax Appellate Tribunal
-Delhi Bench in the case of Bridal Jewellery Manufacturing v. ITO [2017] 82 taxmann. com 232 (Delhi – Trib.) Where assessee-firm was engaged in manufacturing and export of gold jewellery in SEZ and gold in question found during survey operation was out of wastage in manufacturing process, value of said gold was to be treated as income of assessee but eligible for deduction under section 10A of the Act.
3.8. Survey, Search & Seizure cases
It is not uncommon to hear about survey & search cases happening in the Gem & jewellery Industry. In a survey case, a measure of stock is taken and the books are examined. In a search & seizure case, documents and asseets can be seized. It is to be noted that stock in trade cannot be seized by the Department. The Finance Act, 2003 (2003) 261 ITR (St) 62 inserted a proviso to section 132(1)(iii) of the Act stating that that bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business.
The Hon’ble Supreme Court in the case of DGIT v. Diamond star Exports Ltd. (2006) 156 Taxman 299/(2007) 293 ITR 438 (SC) where In the course of search gold, diamond, jewellery and other ornaments were seized. In writ proceedings the High court quashing the proceedings initiated under block assessment and directing the
department to return items seized with interest on value of items seized. Supreme Court in appeal by Department not deciding on whether interest was payable. Department directed to pay cost in lieu thereof.
The Hon’ble Bombay High Court in the case of New Lakshmi Jewellers v. PCIT [2021] 124 taxmann. com 356 (Bom)(HC) where assessee, engaged in business of trading in gold jewellery, gave gold to a job worker for making jewellery which was seized from custody of said job worker as he failed to produce relevant documents, since appeal filed by said job worker against said seizure of gold was pending before Commissioner (Appeals), impugned writ petition filed by assessee claiming to be an owner of such gold could not be accepted.
The Hon’ble Income-tax Appellate Tribunal – Kolkata Bench in the case of Subhas Brothers Jewellers (P.) Ltd. [2014] 51 taxmann.com 422 (Kolkata – Trib.) where during course of survey operations, certain shortages pertaining to cash in hand, gold ornaments, diamond items and silver items was noticed, it was held that merely because shortages had been noticed as compared to books, it could not be said that any undisclosed investment/money was made by assessee. Further held that shortage in gold, silver and diamond ornaments could at best be treated as undisclosed sales and not undisclosed investment.
The Hon’ble High Court of Karnataka in the case of CIT v. B. Sudheer Baliga [2015] 53 taxmann.com 524 (Kar)(HC) where the assessee was in the business of jewellery. A, survey was conducted at the business premises of the assessee. In the course of the survey, they found excess stock of gold and silver. On the very same day, after obtaining a search warrant, what was found as excess stock and jewellery in the business premises was seized. Thereafter,
proceedings were initiated under section 158BC of the Act for block assessment and block assessment order came to be passed. It was held that where certain unaccounted stock was noticed in survey commenced prior to search, could not be subject matter of block assessment proceedings.
The Hon’ble High Court of Gujarat in the case of Jitendra Mansukhlal Adesara v. ACIT [2021] 126 taxmann.com 150 (Guj.)(HC) where during search conducted upon two persons at airport, parcel of gold of certain quantity was seized and documents in form of parcel and courier receipts recovered from them were pertained or related to assessee who was engaged in business of gold ornament, impugned notice under section 153C of the Act issued against assessee was justified
The Hon’ble High Court of Madras in the case of Lalithaa Jewellery Mart (P.) Ltd. v. DDIT [2020] 115 taxmann.com 369 (Mad)(HC) where assessee, a gold jewellery manufacturer, from Chennai, was travelling to Kolkata and gold was seized from his custody at Kolkata airport on tip off from officer at Chennai, since seized gold should be sent for further investigation to Assessing Officer at Chennai, impugned seizure was to be quashed and Assessing Officer Kolkata was not justified in treating said gold as undisclosed investment of assessee in terms of section 69A of the Act.
4. Dénouement
Given the luxurious and expensive nature of stock, the Gem & Jewellery Industry have always been vulnerable to Income-tax assessments. Further, cash transactions & off-the- book transactions are also seen in this industry. A robust accounting & book keeping mechanism can help these industries justify themselves during assessments, surveys, search & seizures.