Income Tax Act, 1961 – Sections 69A and 143(3) – Addition on account of unexplained jewellery – Sustainability – Appellant/assessee filed his return of income for AY 2018-19 – AO completed assessment under Section 143(3) of the Act by making an addition on account of unexplained money in form of jewellery – CIT(A) affirmed action of AO – Whether CIT(A) has erred in confirming addition made by AO on account of alleged unexplained jewellery under Section 69A of the Act – HELD – During course of search, jewellery was seized being treated as unexplained – Except seized jewellery, balance jewellery was treated as explained considering CBDT Circular no.1916 dated 11-5-1994 and consequently, said balance jewellery was not seized by authorized officers – Assessee explained before AO and CIT(A) that entire gold jewellery belonging to assessee was ancestral, parental and received on several occasions and some old jewellery was converted into new one on occasion of some family functions by paying making charges – Genuineness of vouchers/bills of making charges of converted new jewellery claimed by assessee has not been disproved by causing enquiry/verification by lower authorities – Assessee deserves to be granted further benefit considering the CBDT Circular no.1916 to extent of converted jewellery – Seized jewellery stands explained as being received on festivals and ceremonial occasions in family by way of gifts – Addition made on account of unexplained jewellery is deleted – Appeal allowed

 

2024-VIL-282-ITAT-JDP

 

IN THE INCOME TAX APPELLATE TRIBUNAL

JODHPUR BENCH, JODHPUR

 

I.T.A. No. 29/Jodh/2023

Assessment Year: 2018-19

 

Date of Hearing: 18.10.2023

Date of Pronouncement: 02.01.2024

 

ASHOK JAIN

 

Vs

 

DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, UDAIPUR

 

Appellant by: Sh. S. L. Poddar, Adv

Respondent by: Sh. Lovish Kumar, CIT-DR

 

BENCH

DR. M. L. MEENA, ACCOUNTANT MEMBER

SH. ANIKESH BANERJEE, JUDICIAL MEMBER

 

ORDER

 

Per Dr. M. L. Meena, AM

 

This captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeal), Udaipur-2, dated 20.01.2023 in respect of Assessment Year: 2018-19.

 

2. The assessee has raised the following grounds of appeal:

 

“1. Under the facts and circumstances of the case ld. CIT(A) has erred in confirming the addition of Rs.16,22,750/- out of Rs.33,75,748/- made by the ld. Assessing Officer on account of alleged unexplained jewellery u/s 69A of the Income Tax Act, 1961.

 

2. Under the facts and circumstances of the case the ld. CIT(A) has erred in confirming the action of the ld. Assessing Officer in applying the provisions of section 115BBE of the Income Tax Act, 1961 on ancestral and old jewellery found during the course of search.

 

3. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”

 

3. The brief facts of the case are that the appellant Sh. Ashok Jain, Sawan, Shiv Marg, Banswara, is an individual. A Search & Seizure action was conducted on 06-10-2017 in the cases of “WAGAD GROUP” of Banswara and other related entities/persons. The group is engaged in Roads Construction, Industrial Construction, Commercial construction, High level Bridge Construction and Irrigation Dam Projects. M/s Wagad Infra projects Private Limited is the Flagship Company of Wagad Group. Sh. Ashok Jain was the director in M/s Wagad Infra projects Private Limited which was the flagship company of the group and partner in M/s Wagad Construction Company. Subsequently, notices u/s 143(2) and notice u/s 142(1) of the income tax Act, 1961 was issued by the AO to the appellant on 21.09.2019 and notice u/s 142(1) of the Income Tax Act, 1961 was issued by the AO requiring him to produce/explain /furnish various information as specified therein. In response to various notices and queries issued, Authorized Representative of the appellant attended the assessment proceedings, submitted written replies, filed relevant document and the case was discussed with the AO. As per reply of the Authorized Representative of the appellant vide dated 16.12.2019 the jewellery amounting to Rs. 33,75,748/- belongs to the appellant, Sh. Ashok Jain who derives income under the head salaries income, income House Property, and income from other sources during the year under consideration. Assessment was completed by the AO u/s 143(3) of the Income tax Act, 1961 vide dated 30.12.2019 at assessed income of Rs. 82,28,630/- after making addition of Rs. 33,75,748/- in return income of Rs. 49,52,880/- on account of unexplained money in the form of jewellery.

 

4. Being aggrieved with the assessment order, the assessee went in appeal before the ld. CIT(A) who has granted part relief to the appellant assessee by observing as under:

 

“4.2 I have considered the facts of the case and written submissions of the appellant as against the observations/findings of the AO in the assessment order for the year under consideration. The contentions/submissions of the appellant are being discussed and decided as under:-

 

The Assessing Officer made addition because the appellant could not explain the source of investment in Jewellery found during the search. The AO has concluded that the CBDT Circular no. 1916 dated 11/05/1994 is with regard to seizure of the Jewellery and not with regard to assessment of unexplained Jewellery. In this regard, the Assessing officer has relied upon on the decision of Madras High Court in the case of V.G.P. Ravidas Vs. ACIT(2014) 51 taxman.com 16(Madras).

 

The appellant has relied upon the decision of Hon’ble Rajasthan High Court in the case of CIT Vs. Satya Narain Patni (2014) 366 ITR 0325 (Rajasthan). In this decision it was held that CBDT provided prescribed limit Jewelley which will not be seized, it would mean that taxpayer, found with possession of such Jewelley, will also not be questioned about its source and acquisition.

 

The appellant has further quoted judgments of Allahabad High Court, Gujarat High Court, ITAT Mumbai and ITAT Delhi which are in favour of appellant. The jurisdictional High Court, in this case is Rajasthan High Court.

 

The decision of jurisdictional High Court is binding on the lower authorities. Accordingly, following the decision of the jurisdictional High Court, the ground is decided in the favour of the appellant. As per details provided by the appellant, he is entitled for having following quantum of Jewelley

 

 

In case of the appellant the Jewelley found is 1155.420 grams as against limit of 600 grams prescribed by the CBDT Circular. Therefore, the Assessing Officer is directed to consider the submission made by the appellant and restrict the addition made upto Jewellery of 555.420 grams treating the jewellery of 600 grams as explained.

 

The appellant has further replied that jewellery of 1331.410 grams belonging to HUF and Late mother and father of appellant was there and it was reconverted by paying making charges for which vouchers were found and submitted. The appellant has also tried to include family members of other brothers and stated that upto the limit of all members as per CBDT instruction the jewellery should be treated as explained. The reply of the appellant is not found acceptable because of following reasons-

 

1. The decision of the Hon’ble High Court relied upon by the appellant give consideration for only live persons and not who are not living at the time of search.

 

2. The CBDT Circular based on which the decision was rendered is also considers only living members who are living in that house.

 

3. Since, the decision relied upon by the appellant do not apply on this jewellery, this jewellery remains unexplained.

 

4. Without prejudice to the above, there is no identification of the jewelley of a particular person. The allowance allowed to the living family members may be out of the Jewellery claimed to be converted. Even if it is separate source of investment in this jewellery remains unexplained.

 

5. The appellant has also tried to include family members of other brothers and stated that upto the limit of all members as per CBDT instruction the jewellery should be treated as explained. This argument of the appellant is not found acceptable because each assessee is separate in the assessment proceedings. The assessing officer has also made addition considering the jewellery found from the possession of particular person and assessed accordingly. Therefore, the request of clubbing for the purpose of allowing credit is not found acceptable and rejected accordingly.

 

In view of the above discussion, the addition made by AO is upheld to the extent of unexplained Jewellery of 555.420 grams. The amount of which is worked out at Rs. 16,22,750/- on proportionate basis. Addition made by the Assessing Officer is sustained ofRs. 16,22,750/- out of Rs. 33,75,748/-

 

The assessing officer has made the addition under section 69A and this income is subjected to tax as per section 115 BBE of the Income Tax Act. The appellant has raised the ground against the special rate of taxation applied by the Assessing Officer. However, the appellant has not advanced arguments why the action of the assessing officer was not correct. The assessing officer has discussed the issue at length. Unexplained jewellery is treated as deemed income and is subjected to tax at special rate as per section 115 BBE of the Income Tax Act. I agree with the decision of the AO in this regard. The ground raised by the appellant in this regard is treated as dismissed.

 

In the result these grounds of appeal are treated as partly allowed

 

5. The Ld Counsel submitted that the ld. CIT(A) has erred in confirming the addition of Rs.16,22,750/- out of Rs.33,75,748/- made by the ld. Assessing Officer on account of alleged unexplained jewellery u/s 69A of the Income Tax Act, 1961 by applying the provisions of section 115BBE of the Income Tax Act, 1961 on ancestral and old jewellery found during the course of search. He submitted that not only the Learned Assessing Officer rejected the submission of the assessee even the Learned CIT(A) has also not taken into consideration the fact that jewellery of the mother of the assessee who expired in 2009 which was converted in to new jewellery with supporting evidence were furnished. It was argued that out of the total jewellery 1155.420 grams, the Ld. CIT (A) has accepted 600 grams as explained as prescribed by the CBDT Circular and directed to restrict the addition made against Jewellery of 555.420 grams treating the balance jewellery of 600 grams as explained. Thus, the net 555.420 grams has been treated as unexplained. No benefit has been given by the Learned CIT(A) of the jewellery left by the mother of the assessee. It is submitted that out of the gold jewellery converted into new one benefit deserves to be given to the extent of 500 grams as belonging to mother left by her on her death. If the same is considered the remaining jewellery is only 55.420 grams. In this regard it is submitted that it was vehemently argued both before the Learned Assessing Officer as well as before the Learned CIT(A) that the circular of the board gives only broader outlines for not seizing jewelery at the time of search and it also leaves scope for the Learned Assessing Officer 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. It was also submitted before the Learned CIT(A) that the assessee has been disclosing income in returns which established that the assessee belongs to higher strata of the society. The social status of the assessee itself speaks that on occasions of family as well as of festivals gifts of gold are bound to come from in laws side both in the case of the assessee as well as in the case of his son. Therefore, the jewellery 55.420 grams should be treated as explained with reference to the status of the assessee. The Ld. AR humbly requested to delete the addition sustained by the Learned CIT(A) mainly considering the factor of jewellery left by appellants mother which was converted into new one. In support, he places reliance on the following citations.

 

4. Supporting case laws-

It is submitted that for making the addition over and above the CBDT instruction the learned AO has cited decision of Madras High Court in the case of V.G.P. Ravidas v. Assistant Commissioner of Income-tax, Central Circle- IV(3), Chennai (01.09.2014), [2014] 51 taxmann.com 16 (Madras).. In the view of the learned AO the decision supports that the instruction of the CBDT is applicable only for the purposes of seized and not for the purposes of assessment proceedings. In the view of the learned AO even if the jewellery was not seized during the course of search proceedings, the assessee was required to furnish explanation in respect of such jewellery, otherwise additions were justified. It is submitted that the assessee is citing decisions of other High Courts namely the High Court of Rajasthan, Allahabad, Gujarat and also of benches of ITAT of Delhi, Mumbai and Chandigarh. In all these 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.

 

5. Favarouable citations –

The following case laws are quoted in support of the assessee –

 

(i) CIT v. Satya Narain Patni [2014] 366 ITR 0325 (Rajasthan) the Rajasthan High Court held that the CBDT had clearly provided that prescribed limit of jewellery 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.

 

(ii) CIT v. Ghanshyam Das Johri [2014] 41 taxmann.com 295 (Allahabad) the Allahabad High Court held that if one goes with CBDT's Instruction No. 1916, dated 11-5-1994 and 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.

 

(iii) Hon'ble Gujarat High Court in the case of Ratanlal Vyaparilal Jain reported in 339 ITR 351. This decision was delivered on 19.07.2010, commenting about the CBDT Instruction No. 1916, the Hon'ble Court has observed as under: "Thus, although Circular has been issued for the purpose of non- seizure of jewellery during the course of search, the basis for the same recognizes customs prevailing in Hindu Society. 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 as stated in the Circular stands explained.

 

(iv) Smt. Neena Syal reported in 70 ITD 62 by the Hon'ble ITAT Chandigarh Bench and Mrs. Nawaz Singhania Vs. DCIT (ITAT Mumbai). The jewellery of the assessee which is not seized in accordance with Instruction No. 1916 dated 11th May 1994, shall be treated as deemed explained gather further support from the decision of Special Bench of Ahmedabad ITAT in the case of Rameshchandra R. Patel reported in 89 ITD 203.

 

(v) Mrs. Divya Devi v. ACIT in ITA No. 6397/Del/2012 (Delhi Bench of the Tribunal) order dated 16-05-2014, wherein it is observed that it is true that the CBDT Instruction No. 1916, dt. 11th may, 1996 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.

 

It is further submitted that 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 favourable to the assessee need to be followed. Thus the entire addition deserves to be deleted. The assessee further cites case laws which speak that if there are divergent opinions on the same issue, the one which is favourble to the assessee has to be followed –

 

(i) CIT Vs. Vegetable Products (SC) 88 ITR 192

 

(ii) CIT Strawboard Manufacturing Ltd. (SC) 177 ITR 431

 

(iii) CIT vs. A.J. Abraham Anthrapar (2004) 268 ITR 417”

 

6. Per contra, the Ld. DR placed reliance on the impugned order.

 

7. We have heard the rival contentions, perused the material on record, impugned order and case laws cited before us. Admittedly, during the course of search, out of the total jewellery of Rs. 2,27,98,066/- found in the case of the Wagad group, net jewellery to the extent of Rs. 25,88,664/- was seized being treated as unexplained after taking into consideration the number of family members of the group (para 5.1 of the assessment order). Meaning thereby that except seized jewellery worth Rs. 25,88,666/-; the balance jewellery worth of Rs. 2,25,39,774/- (22798640-258866) was treated as explained with reference to number of family members considering the CBDT Circular no. 1916 dated 11.05.1994 and consequently, the aforesaid said balance jevelley was not seized by the authorized officers. The Ld. AR argued that there was no justification for the Learned Assessing Officer to have treated jewellery of Rs.33,75,748/- as unexplained in the single hand of the appellant assessee. However, the Learned CIT(A) after considering the board circular no. 1916 dated 11.05.1994 has granted part relief out of addition of Rs.33,75,748/- and he has sustained the addition of Rs.16,22,750/- on account of unexplained jewellery without appreciating the merits of the case, and ignoring submission of the appellant.

 

8. We have adjudicated a similar issue on identical facts in another case of Sh. Vinod Jain of the same group who has also been granted part relief in ITA No. 30/Jodh/2023 in respect of the Assessment Year: 2018-19 by observing as under:

 

7. We have heard the rival contentions, rust perused the material on record, impugned order and case laws cited before us. Admittedly, during the course of search, out of the total jewellery of Rs. 2,27,98,066/- found in the case of the Wagad group, net jewellery to the extent of Rs. 25,88,664/- was seized being treated as unexplained after taking into consideration the number of family members of the group (para 5.1 of the assessment order). Meaning thereby that except seized jewellery worth Rs. 25,88,666/-; the balance jewellery worth of Rs. 2,25,39,774/- (22798640- 258866) was treated as explained with reference to number of family members considering the CBDT Circular no. 1916 dated 11.05.1994and consequently, the aforesaid said balance jevelley was not seized by the authorized officers. The Ld. AR argued that there was no justification for the Learned Assessing Officer to have treated jewellery of Rs. 57,16,883/- as unexplained in the single hand of the appellant assessee. However, the Learned CIT(A) after considering the board circular no. 1916 dated 11.05.1994 has granted relief of Rs. 38,43,001/- out of the addition of Rs. 5716883 and sustained the addition of Rs. 18,73,882/- on account of unexplained jewellery without appreciating the merits of the case.

 

8. The Ld. AR argued that it was explained before the AO and the CIT Appeal that the entire gold jewellery belonging to the appellant was ancestral, parental and received on the occasion on marriage of self and son namely Pritesh Jain and that the entire jewellery was old more than 10 years and so, only some old jewellery was converted into new one on the occasion of some family functions by paying making charges to M/s Amba Lai Shankar Lai Panchal dealer in gold and silver jewellery in Banswara. The following vouchers were furnished before the learned AO as a matter of evidence regarding jewellery in the case of the family group: -

 

Date	Name of firm	Old gold jewellery	Converted in new gold jewellery	Payment of making charges
28.06.200	Amba Lai Shankar Lai Panchal, Banswa	736.100	677.240	36800
29.11.2014	Amba Lai Shankar Lai Panchal, Banswara	385.300	354.490	19400
Total		1121.40	1031.73	56200

 

9. From the above, it is evident that the appellant assessee has furnished evidence that 1031.73 grams gold jewellery was newly made from old gold jewellery on payment of making charges of Rs. 56,200/-. The Ld. AR has filed copies of vouchers making charges of Rs. 56,200/- (APB, Pgs.38 to 39). It is seen that these vouchers were rejected summarily without causing any enquiries. Thus, the AO and the Ld. CIT (A) failed to disprove the genuineness of the vouchers of the disputed jewellery by way of bringing on record corroborative documentary based on verification as no enquiry was made from M/s Amba Lai Shankar Lai Panchal, Banswara.

 

10. It is noted that out of the total jewellery pertaining to the assessee weighing 1933.900 the Learned CIT(A) has accepted only 1300 grams as explained with reference to the circular of the board and number of persons of the family. However, the ld. CIT (A) has treated the balance 633.900 grams as unexplained by denying benefit of the gold jewellery converted into new one weighing 1031.73 grams without appreciating the merits of the case. In our view, the appellant deserves to be granted further benefit considering the CBDT Circular no. 1916 dated 11.05.1994 to the extent of 500 grams converted jewellery out of old jewellery as claimed to be belonging to mother who left on her death and the genuineness of vouchers/bills of making charges of converted new jewellery claimed by the appellant assessee has not been disproved by causing enquiry/verification by the authorities below. Thus, the remaining jewellery is only 133.900 grams. (633.900 – 500) which is too small to consider the status of the family being less than 10 % of the total jewelley pertains to the appellant assessee and therefore, the same stands explained as being received on festivals and ceremonial occasions in the family by way of gifts.

 

11. In the case of CIT v. Satya Narain Patni (Supra), the Hon’ble Jurisdictional Rajasthan High Court has observed that the CBDT had clearly provided that prescribed limit of jewellery 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.

 

12. In another case of CIT v. Ghanshyam Das Johri (Supra) the Allahabad High Court has observed that if one goes with CBDT's Instruction No. 1916, dated 11-5-1994 and 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 an undisclosed investment.

 

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 Vs. Vegetable Products (SC) 88 ITR 192; CIT Strawboard Manufacturing Ltd. (SC) 177 ITR 431 and CIT vs. A.J. Abraham Anthrapar (2004) 268 ITR 417. Thus, ground no. 1 and 2 are allowed.

 

14. In view of the factual matrix of the case and judicial precedents, we hold that the decision of the Ld. CIT(A) suffers from infirmity and perverse to the facts on record. Accordingly, the addition of Rs. 18,73,882/- on account of unexplained jewellery of 633.900grms confirmed by the Ld. CIT(A) is deleted.

 

9. In the present case, the appellant assessee has produced evidence that 1331.41 grams gold jewellery was newly made from old jewellery on payment of making charges of Rs.60,610/- (synopsis pg. 6). The ld. AR has filed copies of vouchers of making charges of Rs.60,610/- (APB pg. 38-39). It is seen that vouchers were rejected summarily without causing evidences by authorities below. Thus, the AO/CIT(A) failed to disprove genuineness of vouchers of disputed jewellery.

 

10. Following the Coordinate Bench decision on identical facts, we hold that the decision of the Ld. CIT(A) suffers from infirmity and perversity to the facts on record. Accordingly, the addition of Rs.16,22,750/- on account of unexplained jewellery of 555.420 grams is deleted.

 

10. In the result, the appeal filed by the assessee is allowed.

 

Order pronounced as on 02.01.2024 at ITAT Amritsar Bench, Amritsar under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.

 

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