Question 1

#landmark_decisions: Shiv Kumar Jatia v. Income-tax Officer, Ward-10(2), New Delhi - [2021] 127 taxmann.com 179 (Delhi - Trib.)

Accepted Answer

#landmark_decisions

Shiv Kumar Jatia v. Income-tax Officer, Ward-10(2), New Delhi – [2021] 127 taxmann.com 179 (Delhi – Trib.)

INCOME-TAX : As per section 2(14) , any kind of property held by an assessee would come within meaning of ‘capital asset’. And any right which could be property would be capital asset and incidentally interest in an under construction flat is not one of the exclusions and right or interest in property are kinds of property that are transferable assets and hence booking rights or rights to purchase apartment or right to obtain title to apartment are also capital assets that can be transferable and a contract for sale of flat was capable of specific performance and right in an completed building or a flat was clearly a property as contemplated by section 2(14).and the period of holding is to be reckoned from the date of first agreement while computing capital gain on sale of property

has to be determined. The Scheme is in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order thereof. Notice is thus a condition precedent to a demand under sub- section (2). In the instant case, compliance with this statutory requirement has not been made, and, therefore, the demand is in contravention of the statutory provision. Certain other authorities have been cited at the hearing by Counsel for both sides. Reference to them, we consider, is not necessary.”

Union of India & Others vs. Madhumilan Syntex Pvt. Ltd. & Anr. – 1988 (35) ELT 349 (SC)

The Hon”ble Court, following the judgement in Gokak Patel’s case (supra), observed and held as under:

“4. A perusal of the aforesaid provisions shows that before any demand is made on any person chargeable in respect of non-levy or short-levy or under payment of duty, a notice requiring him to show cause why he should not pay the amounts specified in the notice must be served on him. It is the admitted position in the present case that no such notice was served. It would thus appear that the aforesaid demand notice, dated 7th February, 1984 was in violation of the provisions of Section 11A and is bad in law.

Gokak Patel Vokkart Ltd. v. Collector of Central Excise, Belgaum – 1987 (28) E.L.T. 53 (S.C.) = A.I.R. 1987 S.C. 1161 = 2002-TIOL-508-SC-CX,

The Court has held that the provisions of Section 11A(1) and (2) of Central Excises and Salt Act, 1944 make it clear that the statutory scheme is that in the situations covered by sub-section (1), a notice of show cause has to be issued and sub- section (2) requires that the cause shown by way of representation has to be considered by the prescribed authority and then only the amount has to be determined. The scheme is in consonance with the rules of natural justice. An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order. Notice is thus a condition precedent to a demand under subsection (2).”

The aforesaid principle of law has been followed, recognised and/or emphasised by the Hon”ble High Courts and the Appellate Tribunals in a catena of judicial pronouncements. [See, J.K. Synthetics vs. UOI – 2009 (234) ELT 417 (Del.); Ennor Steel vs. UOI – 1990 (47) ELT 363 (Mad.); Acme Mfg. Co. vs. CCE – 2000 (124) ELT 1021 (Tribunal); Cipla Ltd. vs. CCE – 2002 (143) ELT 202 (Tribunal); Sidwal Refrigeration vs. CCE – 2002 (145) ELT 682 (Tribunal); United Telecoms Ltd. Vs CST Hyderabad 2011-TIOL- 56-CESTAT-BANG, to cite a few].

Question 2

#Landmark: Ghanashym Mishra and Sons Vs. Edelweiss Asset Construction [2021] 126 taxmann.com 132 (SC),

Accepted Answer

#Landmark_decisions

Ghanashym Mishra and Sons Vs. Edelweiss Asset Construction [2021] 126 taxmann.com 132 (SC),

The SC in its recent decision dated 13.04.2021 held that once a resolution plan is duly approved by the Adjudicating Authority, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan

What are the most important ingredients to be mentioned in an agreement to give legal ownership even if the title is not transferred?

There must be a contract to transfer for consideration any immovable property;
The contract must be in writing, signed by the transferor, or by someone on his behalf;
The writing must be in such words, from which the terms necessary to construe the transfer can be ascertained;
The transferee must in part performance of the contract, take possession of the property, or of any part thereof;
The transferee must have done some act in furtherance of the contract; and
The transferee must have performed or be willing to perform his part of the contract.

It means that if the above ingredients are not there, the agreement can not be called having legal support. this there can not be called as transfer.

Detailed discussion:-

Landowners to Breathe Easy – No Tax on JDA until its Registration

By S.R. Patnaik on October 12, 2017

POSTED IN DIRECT TAX

The real estate industry has experienced unprecedented growth in the past couple of decades. This has led both landowners and developers to enter into several innovative business models to optimise their resources and maximise returns. The landowners try to ensure that they participate in the future substantial value accretion of the project being developed while developers try to avoid shelling out the entire consideration for the land before commencing any work, to avoid depletion of their resources.

Thus, entering into a joint development agreement (JDA) has become particularly common. This is where the landowner and developer collaborate on the basis that the landowner contributes his land to the project while the developer brings in his expertise in construction to develop the project and both parties share the income earned from the developed project in a pre-determined ratio. Of course, depending on the facts and circumstances of the case, multiple variations of this structure can be seen in the marketplace, with the broad contours of the arrangement remaining the same.

For a long time, litigation has arisen over the taxability of income accruing or arising from a JDA. Primarily, Indian tax authorities contend that the landowner should be liable to pay tax at the time of entering into the JDA, whereas taxpayers have been contending that the tax should be payable only at the time of registration of the JDA.

This contentious issue has hopefully been resolved with the Hon’ble Supreme Court (SC) delivering its verdict in the case of Balbir Singh Maini [CIT v. Balbir Singh Maini, Civil Appeal No. 15619 of 2017]. In the said case, the SC upheld the contentions of the taxpayers, by confirming the decision of the Hon’ble Punjab & Haryana High Court (HC).

Facts of the Case

The taxpayers were members of a housing society (Society) which owned certain land in a village. The Society entered into a tripartite JDA with certain developers (Developers). Under the JDA, it was agreed that the Developers would undertake the development of 21.2 acres of land owned and registered in the name of the Society and in respect of which it would give development rights in lieu of consideration. It is pertinent to note that although the JDA was executed, it was not registered and as per the terms of the JDA, possession of the property was to be handed over simultaneously with the registration of the JDA.

Further, the Developers made only part payment of consideration and, thus, the taxpayers offered to pay tax on the proportionate amount received. However, the JDA was subsequently abandoned as the necessary permissions for development were not granted.

The tax authorities and the Income Tax Appellate Tribunal (ITAT) held that since physical and vacant possession has been handed over under the JDA, the same would tantamount to “transfer” within the meaning of Section of 2(47)(v) of the Income-Tax Act (IT Act). They also concluded that the taxpayer was liable to pay capital gains tax in the assessment year during which the JDA was executed on the entire amount already received and/or receivable in future.

However, the High Court reversed the decision of the ITAT and held that since no possession of land was given by the transferor to the transferee of the entire land in part performance of the JDA, it did fall within the domain of Section 53A of the Transfer of Property Act, 1882 (TOPA). In the absence of the fulfilment of the ingredients of Section 53A, no ‘transfer’ under Section 2(47)(v) would take place. The High Court also observed that the possession delivered was as a licensee for the development of land and not as a transferee and in the absence of registration of JDA, the agreement would not fall under Section 53A of TOPA and consequently, Section 2(47)(v) of the IT Act would not apply.

Decision of the Supreme Court

Any ‘transfer’ of a capital asset would attract capital gains tax in the year in which the transfer of asset takes place. Further, the term ‘transfer’ has been defined inclusively under Section 2(47) of the IT Act. Traditionally, capital gains in relation to immoveable property were taxable in the year in which registered conveyance deed was executed between the parties. As a result, the purchaser would delay or not get the property registered and enjoy the possession of the property in his own right, without the seller paying the legitimate amount of capital gains tax payable by him. To overcome this, the IT Act was amended and the revised definition of ‘transfer’ now includes any transaction that allows the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of TOPA. In other words, those arrangements which confirmed the privileges of ownership without a corresponding transfer of title would now be covered under section 2(47)(v).

Section 53A of TOPA was incorporated to provide protection to a transferee to retain his possession where he had taken possession of the property, pursuant to part performance of the contract. But the following conditions have to be fulfilled, if a transferee wants to defend or protect his possession under Section 53A of TOPA:

There must be a contract to transfer for consideration any immovable property;

The contract must be in writing, signed by the transferor, or by someone on his behalf;

The writing must be in such words, from which the terms necessary to construe the transfer can be ascertained;

The transferee must in part performance of the contract, take possession of the property, or of any part thereof;

The transferee must have done some act in furtherance of the contract; and

The transferee must have performed or be willing to perform his part of the contract.

Section 53A of the TOPA was amended in 2001 and as per the revised provisions, documents containing contracts to transfer for consideration are required to be mandatorily registered. In other words, if a JDA is not registered, it would have no effect in law for the purposes of Section 53A of the TOPA. Thus, it provided an incentive to the parties to register the JDA since it granted them legally enforceable rights.

Given this background, the primary issue before the SC was whether an unregistered JDA, which granted access to the developers for the purposes of development in part performance of the JDA, would get covered within the extended definition of ‘transfer’ under Section 2(47)(v) of the IT Act.

After going through the facts and circumstances and contentions of the taxpayer as well as the tax authorities, the SC observed that under Section 2(47)(v) of the IT Act, the term ‘transfer’ includes any transaction which allows possession to be taken/retained in part performance of a contract of the nature referred to in Section 53A of the TOPA.

Taking note of the amendment to Section 53A of the TOPA, the SC went on to hold that to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which is enforceable under law (i.e. complies with the provisions of Section 53A of the TOPA). A perusal of Section 53A suggests that in the eyes of law, there was no contract which could be taken cognisance of, if it was not registered. Therefore, for the JDA to be considered for the purposes of section 53A of TOPA, it was required to be a registered instrument and since it was not registered in the instant case, the SC held that in the absence of registration of such an agreement, the same was not enforceable under general law and, thus, the transaction would not fall under Section 2(47)(v).

The SC also observed that the ITAT was not correct in its view that, since Section 2(47)(v) of the IT Act refers to “contract of the nature referred to in Section 53A of the TOPA”, the JDA was not required to be registered to attract Section 2(47)(v) as the requirement of registration was introduced only in 2001. The SC clarified that all that was meant by this expression was to refer to the ingredients of applicability of Section 53A of the TOPA to the contracts mentioned therein and only where the contract contained all the essential ingredients under Section 53A of the TOPA, it will be covered within the ambit of transfer, as provided under Section 2(47)(v) of the IT Act. Accordingly, it was held that such an expression could not be stretched so as to say that, though registration of a contract is required only after 2001, Section 2(47)(v) of the IT Act would include within its purview only such contracts mentioned in Section 53A of the TOPA, but without the requirement of registration.

At the same time, the SC rejected the view of the HC which had held that Section 2(47)(vi) of the IT Act would not apply in the absence of any change in membership of the Society. The SC clarified that under Section 2(47)(vi) of the IT Act, any transaction that has the effect of transferring or enabling the enjoyment of any immovable property would come within its purview. Such a transfer could be by way of becoming a member or acquiring shares in a co-operative society ‘or in any other manner whatsoever’. The SC further observed that the HC had erred by not adverting to the expression ‘or in any other manner whatsoever’, which expression shows that it was not necessary that the transaction must refer to the membership of a cooperative society. It held that a reading of the JDA in the present case would show that the Assessee continued to be the owner throughout its tenor, and at no stage purported to transfer ownership rights to the Developer. At the highest, possession alone was granted under the JDA for the specific purpose of the property development. Thus, the present case did not attract the provisions of Section 2(47)(vi) of the IT Act.

Lastly, it was also held that as the JDA was abandoned due to lack of required approvals/permissions, therefore, the income from capital gain on a transaction which never materialised was merely a hypothetical income and no capital gains tax could be levied on such notional income under Section 45, read with Section 48, of the IT Act. In other words, the SC expounded the principle of “real income” and followed the well-established precedents set up by the Indian judiciary to hold that, since no profit or gain was realised, no capital gains tax could be levied.

Conclusion

The SC has reiterated that for a transaction to be regarded as a ‘transfer’ under Section 2(47)(v) of the IT Act, all the conditions of Section 53A of TOPA should be satisfied and possession of the property should be obtained by the transferee in part performance of the contract. It also observed that only real income should be brought to tax and not notional income.

We have discussed here the taxability of income earned from a JDA in the light of the SC decision. It is pertinent to note that there could be several other forms of JDAs, which may raise several other issues regarding taxation of income accruing or arising therefrom, depending on the terms and conditions of such JDAs.

Transaction of unregistered development agreement not regarded as a ‘transfer’ under 2(47)(v); on subsequent cancellation of development agreement, expected income cannot be taxed on hypothetical basis

The Punjab and Haryana High Court (HC), in the taxpayer’s case, held that since the Joint Development Agreement (JDA) was not registered (one of the requirements for grant of possession under the JDA), possession of land could not be said to have been given under the JDA. Therefore, the transaction could not be said to be a ‘transfer’ as per section 2(47)(v) of the Income-tax Act, 1961 (Act) read with section 53A of Transfer of Property Act, 1882 (TOPA). Further, in view of the cancellation of the JDA, no further money was received by the taxpayer and no further actions were taken. Therefore, no income tax could be levied on any hypothetical income from the deal.

Question 3

Some of Ease of doing provisions.. added by the honourable FM...

Accepted Answer

Some of Ease of doing provisions.. added by the honourable FM…

Do you often wonder that the Govt intends to simplify, rationalise and reduce disputes in the Business world?

I am sure that you will think otherwise after reading about these changes. Without any further ado, let’s understand the most stringent provisions made in Budget 2021.

The 1st Stringent Provision

Attachment of Property

Sec. 83

It has been proposed in Section 281B of the Income Tax and Section 83 (1) of the CGST that in cases of tax evasion due to bogus bill, non-existent vendor, circular trading etc., the tax officer now has the power to attach the assets of the company including the bank account.

Besides that, the officer can also provisionally attach property and bank accounts of company directors, partners, company secretary, employees, Managers, CA, CS, Cost Accountants, the associated Auditors, advisors and Advocates or any other person at whose instance such transaction is conducted.

It is critical because here, the department is being empowered to make decisions based on inference and not based on evidence. The further opportunity of personal hearing is being given after the issuance of the Order of Attachment.

Do you think this is a step forward in promoting ease of Business?

Can you justify this Law with any kind of explanation?

Is there any reason not to term this as an Anti-Business law?

The 2nd Stringent Provision

Name and Shame

Sec. 151 and 152

On one hand, the Govt. has proposed to decrease the time limit to open a case in the Income Tax Department from 6 years to 3 years (this does not apply to cases in which the accused tried to evade not more than Rs. 50 Lakhs in a year).

At the same time, under GST, the Law gives powers under section 151 of the CGST Act 2017 to the Commissioner or an Officer authorised by him to direct any person to furnish information relating to any matter in connection with this Act. No time limit is defined for exercising these powers.

Non-only that, but also such information may be published in the public domain if the Commissioner has an opinion that such publication is desirable in the public interest.

This will indirectly result in more number of cases, more number of disputes, businesses will get less time to represent themselves because everything will be based on third party documents.

The 3rd Stringent Provision

Retrospective Amendment

Sec. 7

Under Income Tax, only retired judges of the High Courts and Supreme Court of India were part of the Authority for Advance Ruling under Income Tax Act. The proposed changes allow the Department’s Chief Commissioner level officers to be members of the Authority for Advance Ruling. This will raise direct questions on the fairness of this body while pronouncing judgements in various cases as happened in GST.

Further, due to the proposed retrospective amendment in Section 7 of the CGST Act 2017, the fairness of the GST officer will also become a challenge as the Officer will issue notices largely to the club or association to pay tax on the amount collected from the member with effect from July 2017 by accusing them of willful tax evasion.

The 4th Stringent Provision

Adverse Consequences in case of Delay in Deposit of Tax

Sec. 129 and 130

As per the practice before the proposed changes, every Business had an option to deposit the PF of employees with some delay. After the PF was deposited, reduction in spending was allowed.

As per the proposed changes, not only will you be restricted from requesting for a reduction in spending, but the late submission of PF will be treated as extra income.

This is what you call double Taxation for Businesses.

Why are Businesses getting punished with extra taxes and recovery notice even in case of unavoidable circumstances of delaying the deposit of tax?

Similarly, in GST, in case the transporter or owner fails to pay the amount of penalty within 15 days of the issuance of MOV 6 / MOV 7, the goods or conveyance so detained or seized shall be liable to be sold or disposed of to recover the penalty.

The 5th Stringent Provision

Mismatch, in return, may lead to recovery or cancellation

Sec. 75

As per the proposed changes, committing a mistake in calculating excess tax under section 75 (12) of GST will result in the Department charging it as self-assessment tax without issuing any show cause tax notice.

Similarly, the tax officer can even cancel your registration if he/she finds out a difference between the figures of GSTR 1 and 3B.

You now have no scope for error and will be punished even if the mistake is caused by human error.

Are we heading toward a more straightforward Tax system or making them more complicated?

We are pondering over this question after reading through the proposed changes in the Budget.

The 6th Stringent Provision

ITC will be allowed to avail only if reflected in GSTR 2A

Sec. 16

Input Tax credit for buyers will now only be available after the supplier properly files the return and the same is reflected in his GSTR 2A.

This means that the Tax Invoice of Vendors is nothing more than pieces of paper.

This clearly shows the Govt’s intention, which only wishes to allow ITC only in case of matched and availed Invoices.

The 7th stringent provision

Minor ignorance will cause big trouble and expense.

Sec. 129

This proposed change states in cases of seizure of goods, the accused Business must deposit penalty equal to 200% instead of 100% of the tax payable in case of taxable goods.

As practised earlier, Businesses could get the refund of taxes paid at such times after it is proved that the due taxes were already paid. But, small offences like the E-way bill getting expired are considered big (in the eyes of officials). Businesses are penalised with fines for these offences also.

This happens even in cases where the seized truck has the appropriate documents and no indication of the intention of avoiding taxes. Now, facing this for Businesses will be as hard as it can get in any scenario!

What we see in Media VS the reality

The Finance Minister and the CBIC Chief promote ease of doing business in India in every meeting that we get to see.

The Finance Minister talks about making the Taxation processes simpler, but in actuality, we can see that efforts are being made by the Govt. to introduce stringent provisions which will make life difficult for Businessmen and women.

If the Finance Minister was hesitant to mention these provisions in the Budget speech, then how can we not doubt the intentions of the Govt.?

Question 4

SECTION 16 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 - INPUT TAX CREDIT

Accepted Answer

SECTION 16 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – INPUT TAX CREDIT

Input tax credit cannot be disallowed on ground that seller has not paid tax to Government, when purchaser is able to prove that seller has collected tax and issued invoices to purchaser – Sri Ranganathar Valves (P.) Ltd. v. Assistant Commissioner (CT) (FAC) – [2020] 120 taxmann.com 345 (Madras)

Question 5

SECTION 5(6) OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 - CORPORATE INSOLVENCY RESOLUTION PROCESS

Accepted Answer

SECTION 5(6) OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 – CORPORATE INSOLVENCY RESOLUTION PROCESS

Dispute : Dispute as to quantum of debt would not affect admission of CIRP petition so long as there is default on part of corporate debtor for more than Rs. 1 lakh – Andritz Hydro (P.) Ltd. v. Indira Priyadarshini Hydro Power (P.) Ltd. – [2020] 120 taxmann.com 98 (NCLT – Hyd.)

Question 6

MCA eases private placement norms for qualified institutional buyers

Accepted Answer

MCA eases private placement norms for qualified institutional buyers

Notification No. [F. No. 1/21/2013-CL-V-Part], Dated 16.10.2020

The Ministry of Corporate Affairs has notified the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2020 whereby rule 14 which prescribes ‘procedure for issue of private placement’ has been amended to include fourth proviso to Rule 14(1). Now, companies need not pass Special resolution over and over again in case of offer or invitation of any securities to qualified institutional buyers, it shall be sufficient if previous special resolution is passed only once in a year for all the allotment to such buyers.

Question 7

Membership subscription & fees spent towards meeting

Accepted Answer

Membership subscription & fees spent towards meeting & admn. expenses by club is not a service, not liable to GST

Rotary Club of Mumbai Nariman Point, In re – [2020] 120 taxmann.com 51 (AAAR-MAHARASHTRA)

The applicant is a club and collects amount towards subscription and fee from members to meet meeting and administrative expenses. The applicant has sought an advance ruling to determine whether such contribution received from members amounts to supply under GST?

The Authority for Advance Ruling (‘AAR’) held that amount collected from members expended towards meetings and other administrative expense qualifies as a supply under GST. The applicant filed an appeal before the Appellate Authority for Advance Ruling (‘AAAR’).

The AAAR observed that as per Section 2(17) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) the term ‘business’ includes provision by a club, association, society or any such body (for a subscription or any other consideration) of the facilities or benefits to its members.

In the present case, the applicant is not providing any specific facility or benefits to its members against the membership subscription charged by it. Since the entire subscription amount is spent towards meeting and administrative expenses only, thus the applicant is not doing any business in terms of Section 2(17) of the CGST Act. Further, collection of membership fee and subscription is in the nature of reimbursement for meeting and administrative expenses incurred by the applicant and hence, would not be considered as a supply.

The AAAR set aside the ruling of AAR and held that collection of amount from members for meeting & administrative expenses by club is not a supply of service and hence, not liable to GST.

Question 8

Sale of goods to Outbound Passengers by Duty Free Shop qualify as Exports;

Accepted Answer

Sale of goods to Outbound Passengers by Duty Free Shop qualify as Exports; ITC Refund is available: KER HC

High Court of Kerala, Cial Duty Free and Retail Services Ltd & Oth. Vs. Union of India & Oth.- WP(C).12274/2020 & Others

Various petitions have been filed by the petitioners running Duty Free Shop (‘DFS’) in international airports wherein the sale of goods made to Outbound Passengers were disqualified as exports and accordingly, refund of unutilized ITC was denied by the authorities.

The petitioners submitted that every sale at the DFS located at departure terminal is covered by sale voucher which is deemed to be a shipping bill under the Customs Act, 1962. These transactions are carried out as per the guidelines issued by the Department of Customs from time to time. As per Section 2(11) of the Customs Act, all duty free shops in India are in Customs Area, which include a warehouse and customs station. The products brought from foreign suppliers are kept in custom bonded warehouses and are transferred to DFSs situated at the airport as and when stocks are needed. In other words, products have not crossed the customs frontiers of India.

The Hon’ble High Court observed that invoices issued by DFSs at the time of sale of goods to the outgoing passengers are duly signed by both the passengers and the cashier which envisages a condition that the passenger will not consume the goods until he lands at the final destination outside India. In other words, the passenger shall become owner of the goods only upon reaching of final destination. All the goods which are sold at the DFSs are either imported or purchased from Indian market and are stored in a customs bonded warehouses. Such goods are removed from such warehouses only under the supervision of the Jurisdictional Commissioner and are not sold for domestic purposes. The goods which are brought from customs warehouses do not cross customs frontiers as before the goods are imported in the country, they had been sold at DFSs.

Therefore, if the transaction of sale or purchase takes place when the goods are imported in India or they are being exported from India, no State can impose any tax thereon. All the DFSs are situated at international airports, which are beyond the customs frontiers of India. When any transaction takes place outside the customs frontiers of India, the transaction is said to have taken place outside India.

Question 9

TREATMENT OF JEWELLERY FOUND DURING THE COURSE OF SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE INCOME

Accepted Answer

TREATMENT OF JEWELLERY FOUND DURING THE COURSE OF SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE INCOME-TAX ACT, 1961

SECTION 132 OF THE ACT PROVIDES THAT A SEARCH AND SEIZURE ACTION CAN BE CARRIED OUT IN THE CASE OF ANY PERSON WHO IS IN POSSESSION OF ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING AND SUCH MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING REPRESENTS EITHER WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN DISCLOSED OR WOULD NOT BE DISCLOSED FOR THE PURPOSE OF THE ACT. THE DEPARTMENT HAS POWER TO SEIZE ANY SUCH MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE, IF FOUND UNEXPLAINED AT THE TIME OF SEARCH. MOST COMMONLY, DURING THE COURSE OF SEARCH ACTION, JEWELLERY IS SEIZED FROM EITHER THE RESIDENTIAL PREMISES OR THE BANK LOCKER. IN THIS ARTICLE, WE WILL ELABORATELY DISCUSS ALL THE POSSIBLE ACTION AGAINST THE SEARCHED PERSON(S) IN RESPECT OF JEWELLERY FOUND DURING THE COURSE OF SEARCH.

THERE IS NO LIMIT ON HOLDING OF GOLD JEWELLERY OR ORNAMENTS BY ANYBODY PROVIDED IT IS ACQUIRED FROM EXPLAINED SOURCES OF INCOME INCLUDING INHERITANCE. THIS MEANS THAT LEGITIMATE HOLDING OF JEWELLERY UP TO ANY EXTENT IS FULLY PROTECTED.

POWER OF AUTHORISED OFFICER TO SEIZE JEWELLERY DURING THE COURSE OF SEARCH UNDER SECTION 132 OF THE ACT

THE POWER OF THE AUTHORISED OFFICER TO SEIZE JEWELLERY DURING THE COURSE OF SEARCH IS DERIVED FROM SECTION 132(1)(III), WHICH PROVIDES THAT THE AUTHORIZED OFFICER SHOULD SEIZE ANY SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY, OR OTHER VALUABLE ARTICLE OR THING FOUND AS A RESULT OF SUCH SEARCH. HOWEVER, AS PER THE PROVISO TO THE SAID CLAUSE, ANY 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.

GOVERNMENT OF INDIA

MINISTRY OF FINANCE DEPARTMENT OF REVENUE

CENTRAL BOARD OF DIRECT TAXES,

NEW DELHI, 01 DECEMBER, 2016.

PRESS RELEASE

SUBJECT: TAXATION LAWS (SECOND AMENDMENT) BILL, 2016 – REGARDING

IN THE WAKE OF TAXATION LAWS (SECOND AMENDMENT) BILL, 2016 WHICH HAS BEEN PASSED BY LOK SABHA AND IS UNDER CONSIDERATION WITHRAJYASABHA, SOME RUMOURS HAVE BEEN MAKING ROUNDS THAT ALL GOLD JEWELLERY INCLUDING ANCESTRAL JEWELLERY SHALL BE TAXED @75% PLUS CESS WITH A FURTHER PENALTY LIABILITY OF 10% OF TAX PAYABLE.

2. IT IS HEREBY CLARIFIED THAT THE ABOVE BILL HAS NOT INTRODUCED ANY NEW PROVISION REGARDING CHARGEABILITY OF TAX ON JEWELLERY. THE BILL ONLY SEEKS TO ENHANCE THE APPLICABLE TAX RATE UNDER SECTION 115BBE OF THE INCOME-TAX ACT, 1961 (THE ACT) FROM EXISTING 30% TO 60% PLUS SURCHARGE OF 25% AND CESS THEREON.THIS SECTION ONLY PROVIDES RATE OF TAX TO BE CHARGED IN CASE OF UNEXPLAINED INVESTMENT IN ASSETS. THE CHARGEABILITY OF THESE ASSETS AS INCOME IS GOVERNED BY THE PROVISIONS OF SECTION 69, 69A & 69B WHICH ARE PART OF THE ACT SINCE 1960S. THE BILL DOES NOT SEEK TO AMEND THE PROVISIONS OF THESE SECTIONS. TAX RATE UNDER SECTION 115BBE IS PROPOSED TO BE INCREASED ONLY FOR UNEXPLAINED INCOME AS THERE WERE REPORTS THAT THE TAX EVADERS ARE TRYING TO INCLUDE THEIR UNDISCLOSED INCOME IN THE RETURN OF INCOME AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. THE PROVISIONS OF SECTION 115BBE APPLY MAINLY IN THOSE CASES WHERE ASSETS OR CASH ETC. ARE SOUGHT TO BE DECLARED AS ‘UNEXPLAINED CASH OR ASSET’ OR WHERE IT IS HIDDEN AS UNSUBSTANTIATED BUSINESS INCOME, AND THE ASSESSING OFFICER DETECTS IT AS SUCH.

3. IT IS CLARIFIED THAT THE JEWELLERY/GOLD PURCHASED OUT OF DISCLOSED INCOME OR OUT OF EXEMPTED INCOME LIKE AGRICULTURAL INCOME OR OUT OF REASONABLE HOUSEHOLD SAVINGS OR LEGALLY INHERITED WHICH HAS BEEN ACQUIRED OUT OF EXPLAINED SOURCES IS NEITHER CHARGEABLE TO TAX UNDER THE EXISTING PROVISIONS NOR UNDER THE PROPOSED AMENDED PROVISIONS. IN THIS CONNECTION, A REFERENCE TO INSTRUCTION NO.1916 IS ALSO INVITED WHICH PROVIDES THAT DURING THE SEARCH OPERATIONS, NO SEIZURE OF 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 SHALL BE MADE. FURTHER, LEGITIMATE HOLDING OF JEWELLERY UPTO ANY EXTENT IS FULLY PROTECTED.

4. IN VIEW OF THE ABOVE, THE APPREHENSION SOUGHT TO BE CREATED THAT THE JEWELLERY WITH THE HOUSEHOLD WHICH IS ACQUIRED OUT OF DISCLOSED SOURCES OR EXEMPTED INCOME SHALL BECOME TAXABLE UNDER THE PROPOSED AMENDMENT IS TOTALLY UNFOUNDED AND BASELESS.

(MEENAKSHI J. GOSWAMI)

COMMISSIONER OF INCOME TAX (MEDIA AND TECHNICAL POLICY)

OFFICIAL SPOKESPERSON, CBDT.

GOVERNMENT OF INDIA

MINISTRY OF FINANCE DEPARTMENT OF REVENUE

CENTRAL BOARD OF DIRECT TAXES,

NEW DELHI, 01 DECEMBER, 2016.

PRESS RELEASE

SUBJECT: CLARIFICATIONS WITH RESPECT TO GOLD JEWELLERY UNDER INCOME TAX LAW

IN ORDER TO REMOVE ANY DOUBT ABOUT THE CURRENT POSITION OF INCOME TAX LAW WITH RESPECT TO GOLD JEWELLERY, THE FOLLOWING POINTS ARE CATEGORICALLY CLARIFIED:

THERE IS NO LIMIT ON HOLDING OF GOLD JEWELLERY OR ORNAMENTS BY ANYBODY PROVIDED IT IS ACQUIRED FROM EXPLAINED SOURCES OF INCOME INCLUDING INHERITANCE

VIDE CIRCULAR DATED 11.05.1994, INSTRUCTIONS HAVE BEEN ISSUED IN THE MATTER OF SEARCH AND SEIZURE OF GOLD JEWELLERY.

JEWELLERY AND ORNAMENTS TO THE EXTENT OF 500 GMS FOR MARRIED LADY, 250 GMS. FOR UNMARRIED LADY AND 100 GM FOR MALE MEMBER WILL NOT BE SEIZED, EVEN IF PRIMA FACIE, IT DOES NOT SEEM TO BE MATCHING WITH THE INCOME RECORD OF THE ASSESSE.

OFFICER CONDUCTING SEARCH HAS DISCRETION NOT TO SEIZE EVEN HIGHER QUANTITY OF GOLD JEWELLERY BASED ON FACTORS INCLUDING FAMILY CUSTOMS AND TRADITIONS.

(MEENAKSHI J. GOSWAMI)

COMMISSIONER OF INCOME TAX (MEDIA AND TECHNICAL POLICY)

OFFICIAL SPOKESPERSON, CBDT.

GUIDELINES AS PER CBDT INSTRUCTION NO. 1916 DATED 11.05.1994

THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED GUIDELINES/ INSTRUCTION NO. 1916 DATED 11.05.1994 IN THE MATTER OF SEIZURE OF JEWELLERY, WHICH READS:

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.

(I) 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.

(II) 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.

(III) 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.

(IV) IN ALL CASES, A DETAILED INVENTORY OF THE JEWELLERY AND ORNAMENTS FOUND MUST BE PREPARED TO BE USED FOR ASSESSMENT PURPOSES.

THE CBDT HAS CLARIFIED THAT NO SEIZURE OF GOLD JEWELLERY FOUND DURING THE COURSE OF SEARCH, SHOULD BE MADE BY THE AUTHORISED OFFICER, WHEN,

(A) SEARCHED PERSON HAS DISCLOSED JEWELLERY IN ITS WEALTH TAX RETURN,

(

WHERE THE JEWELLERY IS WITHIN THE PRESCRIBED LIMIT I.E 500 GRAMS FOR MARRIED LADY, 250 GRAMS FOR UNMARRIED LADY AND 100 GRAMS FOR MALE MEMBERS.

(C) AUTHORISED OFFICER MAY EXCLUDE A LARGER QUANTITY OF JEWELLERY FROM SEIZURE HAVING REGARDS TO STATUS AND CUSTOMS OF COMMUNITY TO WHICH THEY BELONGS.

SOURCE OF JEWELLERY FOUND BEING PART OF THE ANCESTRAL / INHERITANCE JEWELLERY ATTAINED THROUGH WILL, NEEDS TO BE PROVED

THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED GUIDELINES/ INSTRUCTION NO. 1916 DATED 11.05.1994 IN THE MATTER OF SEIZURE OF JEWELLERY WHICH PROVIDES THAT DURING THE SEARCH, NO SEIZURE OF 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 SHALL BE MADE. IT IS SUBMITTED THAT LEGITIMATE HOLDING OF JEWELLERY TO THE EXTENT IS FULLY PROTECTED IF SOURCE OF SUCH JEWELLERY IS EXPLAINED. IN CASE OF JEWELLERY IS CLAIMED TO BE AS PER WILL, THE ASSESSEE HAS TO PROVIDE CORROBORATIVE EVIDENCE SUBSTANTIATING THAT WILL EXECUTED PRIOR TO SEARCH. IN THE MATTER OF ANCESTRAL / INHERITANCE JEWELLERY, ASSESSEE HAS TO PROVIDE COPY OF WILL TO SUBSTANTIATE JEWELLERY IN POSSESSION.

JEWELLERY FOUND IN BANK LOCKER

GENERALLY, BANK LOCKER IS OPENED EITHER IN THE NAME OF LADY MEMBER OR JOINTLY WITH LADY MEMBER OF THE FAMILY. IN SUCH CASES, TO OPERATE THE BANK LOCKER, A WARRANT UNDER SECTION 132 IS REQUIRED AND DUE TO ISSUANCE OF SEARCH WARRANT IN THE NAME OF LADY MEMBER, ASSESSMENT OF SIX ASSESSMENT YEARS UNDER SECTION 153A SHALL BE RE-OPENED. IN OTHER WORDS BECAUSE OF THE ISSUANCE OF WARRANT UNDER SECTION 132 OF THE ACT, TO OPERATE THE SAID BANK LOCKER, LADY MEMBER WOULD REQUIRE TO FACE NOTICES FOR SIX YEARS ASSESSMENT YEARS UNDER SECTION 153A. IN CASE, IF SUCH LOCKER IS OPENED IN ONLY IN THE NAME OF MALE MEMBERS, AND JEWELLERY FOUND FROM SUCH LOCKER PARTLY OR FULLY BELONG TO ANY LADY MEMBER THEN SUCH LADY MEMBER MAY FACE PROCEEDING UNDER SECTION 153C OF THE ACT. IN SUCH CASE NOTICE FOR SPECIFIC YEARS AND NOT ALL SIX ASSESSMENT YEAR WILL BE ISSUED.

FURTHER, IF DURING THE COURSE OF SEARCH, ANY JEWELLERY IS FOUND FROM THE POSSESSION OF THE ASSESSEE, THEN HE HAS TO EXPLAIN SUCH JEWELLERY TO THE SATISFACTION OF THE AUTHORISED OFFICER WITH PROPER DOCUMENTARY EVIDENCES.

THE NECESSARY FACTS RELATING TO GOLD ORNAMENTS, HOW THE SAME ARE ACQUIRED BY FAMILY ETC. WHETHER SUCH GOLD IS ACQUIRED THROUGH GIFT OR INHERITANCE ETC. NEED TO BE MENTIONED IN STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT AS SUCH STATEMENT CARRIED WEIGHT AND HAS MORE EVIDENTIARY VALUE IN SEARCH PROCEEDINGS AS WELL AS SUBSEQUENT ASSESSMENT PROCEEDINGS. IN SOME CASES, IT IS OBSERVED THAT JEWELLERY FOUND FROM THE LOCKER OF A PERSON/FROM ROOM OF A PERSON, ACTUALLY BELONG TO OTHER FAMILY MEMBER OF THE GROUP. IN SUCH CASES, THE PROPER FACTS SHOULD BE BROUGHT-OUT IN THE STATEMENTS RECORDED DURING AND IN POST SEARCH PROCEEDINGS MENTIONING THE NAME OF THE PERSON TO WHOM SAID JEWELLERY ACTUALLY BELONG TO AND IF REQUIRE, NECESSARY AFFIDAVITS MAY BE FILED.

APPLICATION TO RELEASE THE SEIZED JEWELLERY CAN BE MADE [SECTION 132B (1)]

IF DURING THE COURSE OF SEARCH, ANY JEWELLERY OR ORNAMENTS SEIZED BY THE AUTHORISED OFFICER, THEN IN VIEW OF THE PROVISO TO SECTION 132B (1) OF THE ACT, AN APPLICATION TO THE ASSESSING OFFICER SHALL BE MADE WITHIN THIRTY DAYS FROM THE END OF THE MONTH IN WHICH THE ASSET WAS SEIZED. IN THE SAID APPLICATION FOR RELEASE OF SEIZED JEWELLERY, ASSESSEE HAS TO EXPLAIN THE NATURE AND SOURCE OF JEWELLERY AND OTHER VALUABLES FOUND DURING THE COURSE OF SEARCH TO THE SATISFACTION OF THE ASSESSING OFFICER.

IN WHICH YEAR, ADDITION OF THE UNEXPLAINED JEWELLERY SHOULD BE MADE?

SECTION 69A PROVIDES THAT WHERE IN ANY FINANCIAL YEAR, AN ASSESSEE IS FOUND TO BE THE OWNER OF ANY JEWELLERY WHICH IS NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE EXPLANATION OFFERED BY ASSESSEE ABOUT THE NATURE AND SOURCE OF ACQUISITION IS NOT SATISFACTORY, THEN VALUE OF SUCH JEWELLERY WOULD BE DEEMED TO BE INCOME OF THE ASSESSEE IN THE YEAR IN WHICH THE ASSESSEE WAS FOUND TO BE THE OWNER OF THE JEWELLERY. MEANING THEREBY, IN TERMS OF SECTION 69A, ASSESSEE WOULD BE TREATED IN POSSESSION OF JEWELLERY, WHEN JEWELLERY WAS FOUND AND SEIZED BY REVENUE, AND WOULD BE TAXED AS UNEXPLAINED INVESTMENT IN THE YEAR IN WHICH IT WAS FOUND I.E. MOSTLY IN THE YEAR OF SEARCH.

ADDITION FOR UNEXPLAINED GOLD CANNOT INCLUDE VALUE OF SILVER

THE ADDITION FOR UNEXPLAINED GOLD MADE BY COMBINING THE VALUE OF GOLD AND SILVER IS NOT JUSTIFIED IN LAW. ITAT STATES THAT THE ASSESSING OFFICER HAS STARTED BY CONSIDERING THE VALUATION OF GOLD AT THE QUANTITY OF 831.74 AT RS.28,83,301 AND HAS FINALLY ADDED A SUM OF RS.562,400 AS UNEXPLAINED GOLD. HOWEVER, IT IS THE FACT THAT ACTUALLY THE VALUATION OF GOLD SEIZED WAS RS. 24,21,206. IN THE VALUATION THE SILVER FOUND WAS RS 4,62,095. HENCE THE INCLUSION OF SILVER VALUED AT RS 4,62,095 INTO GOLD ORNAMENTS AND CONSEQUENT ADDITION TO THIS EXTENT IS NOT SUSTAINABLE. ACCORDINGLY, ITAT DIRECT THE ADDITION OF RS 4,62,095 AS NOT JUSTIFIED, AND THE SAME IS DIRECTED TO BE DELETED. (RELATED ASSESSMENT YEAR: 2013-14) – [SHRI MOHANLAL HARIDAS PURWAT V. DCIT – DATE OF JUDGEMENT: 15.07.2020 (ITAT MUMBAI)]

EXPLAINED JEWELLERY CANNOT BE INCLUDED WHILE GIVING BENEFIT OF CBDT INSTRUCTION RELATED TO UNEXPLAINED JEWELLERY – CBDT INSTRUCTION NO. 1916 WILL NOT TAKE AWAY THE BENEFIT OF EXPLAINED JEWELLERY

THE ASSESSEE CLAIMED BENEFIT OF CBDT INSTRUCTION NO. 1916 DATED 11.05.1994 TO THE EXTENT OF 850 GMS. OF JEWELLERY IN THE HANDS OF HIS WIFE, DAUGHTER AND HIMSELF. THE ASSESSING OFFICER ACCEPTED THE SAID CLAIM AND ALLOWED THE BENEFIT TO THE EXTENT OF 850 GMS. OF JEWELLERY. THE ASSESSEE ALSO CLAIMED THAT GOLD JEWELLERY OF 343.328 GMS. WERE PURCHASED FROM TIME TO TIME AND RECORDED IN THE BOOKS OF ACCOUNT AND BALANCE SHEET OF THE ASSESSEE AND HIS FAMILY MEMBERS. THE ASSESSING OFFICER DENIED THE SAID CLAIM OF THE ASSESSEE.

THE FIRST ISSUE IS REGARDING THE ADDITION SUSTAINED BY THE LD. CIT(A) TO THE TUNE OF RS. 4,57,404/- ON ACCOUNT OF UNEXPLAINED GOLD JEWELLERY BY REJECTING THE CLAIM OF THE ASSESSEE BEING ACQUISITION OF THE SAID JEWELLERY BY WAY OF PURCHASES MADE FROM TIME TO TIME AND ALSO RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THERE IS NO DISPUTE REGARDING THE FACT THAT JEWELLERY TO THE EXTENT 343.328 GMS. REPRESENTS THE PURCHASES MADE BY THE ASSESSEE FROM TIME TO TIME WHICH IS DULY SUPPORTED BY THE PURCHASE BILLS FOUND DURING THE SEARCH AND SEIZURE ACTION. THE SAID QUANTITY OF JEWELLERY IS DULY RECORDED IN THE BALANCE SHEET/ BOOKS OF ACCOUNT OF THE ASSESSEE AND HIS FAMILY MEMBERS. ONCE THE ASSESSING OFFICER HAS NOT DISPUTED THE PURCHASES MADE BY THE ASSESSEE OF THE SAID QUANTITY OF JEWELLERY THEN THE SAME CANNOT BE TREATED AS UNEXPLAINED JEWELLERY OF THE ASSESSEE.

THE ASSESSING OFFICER HAS DENIED THE BENEFIT OF THE SAID QUANTITY OF JEWELLERY ON THE GROUND THAT SINCE THE BENEFIT OF REASONABLE JEWELLERY TO THE EXTENT OF 850 GMS. AS PER CBDT INSTRUCTION NO. 1916 DATED 11.05.1994 IS ALREADY GRANTED, THEREFORE, TO THAT EXTENT, NO FURTHER BENEFIT CAN BE GRANTED. IT IS PERTINENT TO NOTE THAT CBDT INSTRUCTION NO. 1916 DATED 11.05.1994 HAS EXPLAINED IN CASE OF GOLD JEWELLERY FOUND IN THE POSSESSION OF THE ASSESSEE DURING THE COURSE OF SEARCH AND SEIZURE ACTION AND THE ASSESSEE IS NOT ABLE TO EXPLAIN THE SAME THEN THE QUANTITY PRESCRIBED UNDER THE SAID CBDT INSTRUCTION NO. 1916 IN RESPECT OF MARRIED FEMALE MEMBER, UNMARRIED FEMALE MEMBER AND MALE MEMBER OF THE ASSESSEE WOULD BE TREATED AS A REASONABLE HOLDING OF JEWELLERY ON ACCOUNT OF ACQUISITION OF THAT MUCH JEWELLERY ON VARIOUS OCCASIONS OF MARRIAGES, OTHER SOCIAL & CUSTOMARY OCCASIONS AS PREVAILING IN THE SOCIETY. THEREFORE, REASONABLE POSSESSION OF THE JEWELLERY AS PER THE CUSTOMS PREVAILING IN THE SOCIETY IS THE BASIS FOR ALLOWING THE BENEFIT OF CERTAIN QUANTITY OF JEWELLERY EXPLAINED BY THE CBDT INSTRUCTION NO. 1916 DATED 11.05.1994 WHICH MEANS THAT THE ASSESSEE NEED NOT TO EXPLAIN THE SOURCE OF JEWELLERY FOUND IN HIS POSSESSION TO THE EXTENT OF SPECIFIED QUANTITY TREATED AS REASONABLE POSSESSION BY FAMILY MEMBERS OF THE ASSESSEE. THE SAID CBDT INSTRUCTION NO. 1916 ALLOWING THE SPECIFIC QUANTITY AS REASONABLE AND NEED NOT TO BE EXPLAINED, DOES NOT INCLUDE THE JEWELLERY WHICH IS OTHERWISE EXPLAINED BY PROOF OF DOCUMENTS OF ACQUISITION AS WELL AS DECLARED/ RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. HENCE, THE QUANTITY OF JEWELLERY WHICH IS OTHERWISE EXPLAINED BY THE ASSESSEE BY PRODUCING THE PURCHASE BILLS AS WELL AS RECORDED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THE ASSESSING OFFICER HAD NOT DISPUTED THE SAID EXPLANATION THEN THE QUANTITY WHICH IS EXPLAINED OTHERWISE BY PRODUCING THE PURCHASE BILLS AND BOOKS OF ACCOUNT WOULD NOT BE TREATED AS PART OF THE QUANTITY OF REASONABLE POSSESSION AS PRESCRIBED UNDER THE SAID CBDT INSTRUCTION NO. 1916 DATED 11.05.1994. THEREFORE, THE BENEFIT OF CBDT INSTRUCTION NO. 1916 DATED 11.05.1994 WILL NOT TAKE AWAY THE BENEFIT OF THE EXPLAINED JEWELLERY ACQUIRED BY THE ASSESSEE. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCE OF THE CASE, THE QUANTITY OF JEWELLERY TO THE EXTENT OF 343.328 GMS. HAS TO BE ALLOWED SEPARATELY AS EXPLAINED JEWELLERY AND NO ADDITION CAN BE MADE TO THAT EXTENT. (RELATED ASSESSMENT YEAR: 2016-17) – [RAM PRAKASH MAHAWAR V. DCIT, CENTRAL CIRCLE ALWAR – DATE OF JUDGEMENT: 20.02.2020 (ITAT JAIPUR)]

SHORT OF THE JEWELLERY FOUND (I.E. NOT FOUND DURING SEARCH) CAN NOT BE TREATED AS SOLD TO LEVY CAPITAL GAIN

ITAT STATES THAT, THE ASSESSEE HAS GIVEN THE EXPLANATION THAT THE SHORT OF THE JEWELLERY FOUND DURING THE SEARCH WAS DUE TO THE REASON THAT IN A RECENT TIME THE ASSESSEE’S DAUGHTER GOT MARRIED AND SOME OF THE JEWELLERY IS EITHER WITH THE RELATIVES OR WITH THE VALUER. THESE FACTS WERE BROUGHT ON RECORD DURING THE SEARCH AND IN THE STATEMENT OF THE ASSESSEE TAKEN DURING THE SEARCH HAS GIVEN DETAILS OF THE RELATIVES OF ASSESSEE WITH WHOM SHE HAS KEPT THE JEWELLERY. IT IS THE FACT THAT THE ASSESSEE HAS NOT FILED ANY CONFIRMATION OF THESE RELATIVES BUT IT IS ALSO PERTINENT TO NOTE THAT THE REVENUE HAS NOT ISSUED 133(6) NOTICE FOR OBTAINING THE REAL PICTURE OF ASSESSEE’S SUBMISSIONS. THERE IS NO MECHANISM UNDER THE PROVISIONS OF INCOME TAX ACT, IF THERE IS SHORT OF THE JEWELLERY DECLARED BY THE ASSESSEE THEN THE SAME SHOULD BE TREATED AS SOLD AND THE CAPITAL GAIN IS ATTRACTED. IN THE PRESENT CASE THE ASSESSING OFFICER AS MERELY SUSPECTED THAT THE JEWELLERY WAS SOLD, BUT HAS NOT BROUGHT ANY MATERIAL ON RECORD. THEREFORE, THE ASSESSING OFFICER AS WELL AS CIT(A) OVERLOOKED THE PRACTICAL ASPECT THAT THE JEWELLERY IS WITH RELATIVES / VALUER. HENCE, ASSESSEE’S APPEAL IS ALLOWED. (RELATED ASSESSMENT YEAR: 2015-16) – [BINA AGGARWAL V. ACIT DATE OF JUDGEMENT: 30.10.2019 (ITAT DELHI)]

UNEXPLAINED MONEY SECTION 69A: WHERE ASSESSING OFFICER UNDER SECTION 69A MADE ADDITION ON ACCOUNT OF JEWELLERY ASSESSEE BELONGED TO A WEALTHY FAMILY AND JEWELLERY WAS RECEIVED ON OCCASIONS FROM RELATIVES, EXCESS JEWELLERY WAS VERY MUCH REASONABLE AND, THUS, NO ADDITION UNDER SECTION 69A WAS CALLED FOR

IT WAS HELD THAT WHERE GIFTING OF JEWELLERY POSSESSED BY EACH OF FAMILY MEMBERS WAS CUSTOMARY AND JEWELLERY WAS GIFTED TO ASSESSEE AND HIS WIFE BY THEIR PARENTS AND GRANDPARENTS AND OTHER RELATIVES AT TIME OF THEIR MARRIAGE, AND ALSO ON SEVERAL OCCASIONS AFTER THAT, SUCH AS BIRTH OF THEIR TWO CHILDREN, MARRIAGE ANNIVERSARIES, ETC., EXCESS JEWELLERY FOUND WAS NOMINAL, KEEPING IN MIND HIGH STATUS AND MORE CUSTOMARY PRACTICES AND STANDS EXPLAINED. – [VIBHU AGGARWAL V. DCIT (2018) 93 TAXMANN.COM 275 (ITAT DELHI)]

IN THE CASE OF DINKAR LAXMAN MUJUMDAR V. DCIT, THE ITAT INDORE HAS ALLOWED BENEFIT OF CBDT INSTRUCTION NO. 1916, DATED 11.05.1994 TO THE SILVER ARTICLE FOUND DURING THE COURSE OF SEARCH CONSIDERING THE CUSTOMS OF THE INDIAN CULTURE. – [DINKAR LAXMAN MUJUMDAR V. DCIT – DATE OF JUDGEMENT: 18.10.2018 (ITAT INDORE)]

NO ADDITION FOR JEWELLERY FOUND WITHIN CBDT CIRCULAR PRESCRIBED LIMIT

THE INSTANT IS A CASE WHERE THE ASSESSEE HAS NOT BEEN ASSESSED TO WEALTH TAX AND THE GOLD JEWELLERY FOUND WAS WITHIN THE PERMISSIBLE LIMITS CONTAINED IN THE CBDT CIRCULAR DATED 11.05.1994 (SUPRA) AND THEREFORE THE RATIO OF THE JUDGEMENT OF THE HON’BLE RAJASTHAN HIGH COURT CLEARLY COVERS THE ISSUE IN FAVOUR OF THE ASSESSEE. THE HON’BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT, ALWAR V. SATYA NARAIN PATNI (2014) 366 ITR 325 (RAJ.) NOTED THAT THE JEWELLERY FOUND DURING THE SEARCH WAS WITHIN THE LIMITS PRESCRIBED BY THE CBDT CIRCULAR AND IN THE FIRST INSTANCE, THE JEWELLERY WERE NOT SEIZED, AND IT WAS HELD THAT NO ADDITION THEREAFTER WAS JUSTIFIABLE. IN FACT, THE CBDT CIRCULAR DATED 11.05.1994 SPECIFICALLY CONTAINS PARA (II), WHICH PRESCRIBES THAT IN THE CASE OF WEALTH TAX ASSESSEES GOLD JEWELLERY AND ORNAMENTS FOUND IN EXCESS OF THE GROSS WEIGHT DECLARED IN THE WEALTH TAX RETURNS ONLY NEED TO BE SEIZED. WE HOLD SO. THEREFORE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW APPROPRIATE RELIEF AND RECOMPUTE THE INCOME ON THIS ASPECT AFRESH. THUS, THE ASSESSEE SUCCEEDS IN THIS APPEAL. (RELATED ASSESSMENT YEAR: 2012-13) – [ASHOK JAIN V. ACIT – DATE OF JUDGEMENT: 25.05.2018 (ITAT MUMBAI)]

STREEDHAN IN THE FORM OF JEWELLERY RECEIVED DURING SPAN OF 20-25 YEARS CANOT BE SAID TO BE UNEXPLAINED INVESTMENT UNDER SECTION 69A

ASSESSING OFFICER HAS MADE THE ADDITION OF RS. 10,65,312 ON ACCOUNT OF PURPORTED UNEXPLAINED JEWELERY CLAIMED BY THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THE JEWELERY FOUND DURING THE COURSE OF SEARCH AND SEIZURE OPERATIONS WAS FROM THE LOCKER HELD BY THE FATHER IN LAW AND HUSBAND OF THE ASSESSEE AND HENCE THE ADDITION IN THE HANDS OF THE ASSESSEE IS UNCALLED FOR. IT WAS NOTED THAT JEWELLERY FOUND FROM THE JOINT LOCKERS WAS EXPLAINED TO BE BELONGING TO LATE MOTHER IN LAW OF THE ASSESSEE SMT. SARITA SONI, HOWEVER, THE ASSESSING OFFICER HAS REJECTED THIS CONTENTION. IT IS FURTHER NOTED THAT ASSESSEE’S BELONGS TO JOINT FAMILY AND IT IS UNDISPUTED POSITION THAT MARRIAGES OF MOTHER IN LAW HAD TAKEN PLACE 53 YEARS PRIOR TO THE SEARCH AND MARRIAGE OF THE ASSESSEE HAD TAKEN PLACE 20 YEARS. I FURTHER NOTE THAT THE HON’BLE HIGH COURT OF DELHI IN THE CASE OF ASHOK CHADHA V. ITO (2011) 202 TAXMANN 395: 14 TAXMANN.COM 57 (DELHI.) HAS ACCEPTED THE JEWELLERY OF 906.60 GRAMS IN THE CASE OF MARRIED LADY EVEN WITHOUT DOCUMENTARY EVIDENCE AS THE DENYING THE EXPLANATION WOULD TANTAMOUNT TO OVERLOOKING THE REALITIES OF LIFE.

KEEPING IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE STATUS OF THE FAMILY AND ON THE ANVIL OF THE JUDGEMENT OF THE HIGH COURT OF DELHI IN THE CASE OF ASHOK CHADHA V. ITO (2011) 202 TAXMANN 395 : 14 TAXMANN.COM 57 (DELHI.), THE EXPLANATION GIVEN BY THE ASSESSEE’S COUNSEL IS ACCEPTED. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE CANCELLED AND ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) AMOUNTING TO RS. 10,65,312/- ON ACCOUNT OF PURPORTED UNEXPLAINED JEWELLERY CLAIMED BY THE ASSESSEE IS DELETED. (RELATED ASSESSMENT YEAR: 2011-12) – [SUNEELA SONI V. DCIT – DATE OF JUDGEMENT: 16.03.2018 (ITAT DELHI)]

NO SEIZURE OF JEWELLERY IF GROSS WEIGHT DISCLOSED IN REGULAR RETURN EXCEEDS JEWELLERY FOUND DURING SEARCH

INSTRUCTION 1916 ISSUED BY THE BOARD WITH REGARD TO SEIZURE OF JEWELLERY HAS INHERENT FOUNDATION OF UNDISCLOSED PORTION OF JEWELLERY THAT MAY BE IDENTIFIED IN THE SEARCH. THE INSTRUCTION NO. 1916, THEREFORE IS DESCRIBING THE CRITERIA FOR DECISION MAKING FOR JEWELLERY TO BE UNDISCLOSED. ACCORDINGLY, ANY PORTION OF THE JEWELLERY, WHICH IN TERMS OF INSTRUCTION NO. 1916 IS NOT TO BE SEIZED IS AUTOMATICALLY NOT UNDISCLOSED. IT IS IN THIS BACKGROUND THAT COURTS HAVE HELD THAT ONCE SEIZURE IS NOT PERMITTED BY VIRTUE OF INSTRUCTION NO. 1916, ADDITION TO INCOME CANNOT BE MADE IN THE ASSESSMENT. IN THE PRESENT FACTS OF THE CASE, BY VIRTUE OF CLAUSE (I) OF INSTRUCTION 1916, BECAUSE THE GROSS WEIGHT OF THE JEWELLERY DISCLOSED (1876.11 GRAMS) BY THE FAMILY IS IN THEIR REGULAR RETURNS WERE IN EXCESS OF GROSS WEIGHT OF JEWELLERY FOUND (1650.10 GRAMS) IN THE SEARCH, NO SEIZURE WAS POSSIBLE AND THEREFORE, NO ADDITION TO INCOME IS CONSEQUENTLY PERMISSIBLE. (RELATED ASSESSMENT YEAR: 2012-13) – [MRS. NAWAZ SINGHANIA V. DCIT – DATE OF JUDGEMENT: 22.12.2017 (ITAT MUMBAI)]

THE HON’BLE MADRAS HIGH COURT IN THE CASE OF V.G.P. RAVIDAS V. ACIT (2015) 370 ITR 364 AND V. G. SELVARAJ V. ACIT (2015) 370 ITR 364 WHEREIN IT IS HELD THAT THE CBDT INSTRUCTION ENABLE ASSESSING OFFICER TO EXCLUDE A LARGER QUANTITY OF JEWELLERY AND ORNAMENTS FROM SEIZURE, ONLY IF THERE ARE CIRCUMSTANCES TO COME TO CONCLUSION THAT STATUS OF FAMILY AND CUSTOM AND PRACTICES OF THE COMMUNITY REQUIRE HOLDING OF SUCH JEWELLERY. IF ASSESSEE DOES NOT OFFER ANY SUCH EXPLANATION, THE INSTRUCTION WILL NOT BE APPLICABLE AND EXCESS JEWELLERY MAY BE SEIZED AND CONSIDERED AS UNEXPLAINED INVESTMENT.

IT WAS HELD THAT NO ADDITION IS CALLED FOR WHEN TOTAL GOLD JEWELLERY AVAILABLE WITH THE ASSESSEE AS SHOWN IN THE WEALTH TAX RETURN AND OBTAINED ON MATURITY OF GOLD BOND SCHEME WHICH IS MORE THAN THE GOLD JEWELLERY WEIGHING FOUND DURING THE COURSE OF SEARCH. – [RAKESH BANSAL V. ACIT, CENTRAL CIRCLE-II, CHANDIGARH 2020 (1) TMI 982 (ITAT CHANDIGARH)]

SEIZURE IS NOT POSSIBLE WHEN GROSS WEIGHT OF JEWELLERY DISCLOSED IN REGULAR RETURNS IS IN EXCESS OF GROSS WEIGHT OF JEWELLERY FOUND IN SEARCH

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. IT HAS ALSO POINTED OUT THAT JEWELLERY MAY BE FREQUENTLY CONVERTED INTO DIFFERENT DESIGN DEPENDING ON THE NEEDS AND STATUS OF THE FAMILY AS WELL AS CUSTOMS AND PRACTICES OF THE COMMUNITY AND THEREFORE, COMPARISON OF ITEM TO ITEM MAY NOT BE POSSIBLE WITH THE WEIGHT DISCLOSED IN REGULAR RETURNS. – [MRS. NAWAZ SINGHANIA V. DCIT (2017) 88 TAXMANN.COM 327 (ITAT MUMBAI)]

IT WAS HELD THAT JEWELLERY FOUND IN EXCESS OF LIMITED PRESCRIBED BY THE CBDT’S INSTRUCTION NO. 1916, DATED 11.05.1994 AS EXPLAINED ON THE GROUND THAT JEWELLERY BELONGS TO THE ASSESSEES HAVING RECEIVED AS “STREEDHAN” ON THE OCCASION OF MARRIAGE AND ALSO RECEIVED SUBSEQUENTLY ON OCCASIONS LIKE BIRTH OF CHILD ETC. IN PURSUANT TO CUSTOMS/TRADITION OF FAMILY. THE ASSESSEE BELONGING TO ‘BANIYA’ FAMILY HAVE BEEN MARRIED FOR 35 YEARS AND 8 YEARS. FURTHER THEY WERE JOINTLY RESIDING WITH THEIR MOTHER IN LAW SHANTI MITTAL WHO HAD BEEN MARRIED FOR ABOUT 65 YEARS. APART FROM THE ABOVE THE FAMILY COMPRISED OF HUSBAND OF BOTH THE ASSESSEE AND SON. THUS, LOOKING TO THE TRADITION OF FAMILY HON’BLE TRIBUNAL HAS ACCEPTED THE JEWELLERY IN EXCESS OF LIMIT PRESCRIBED BY THE ABOVE CIRCULAR WAS IN VIEW OF THE FACT THAT THE SAME BEING RECEIVED AS STREEDHAN DURING THE COURSE OF MARRIAGE AND SUBSEQUENT MARRIAGE. – [RADHA MITAL AND RUCHIE MITAL V. DCIT ITA NO: 2810/DEL/2016 DATED 09.07.2016 (ITAT DELHI)]

IN CASE OF WEALTH TAX ASSESSEES GOLD JEWELLERY AND ORNAMENTS FOUND IN EXCESS OF THE GROSS WEIGHT DECLARED IN THE WEALTH TAX RETURNS ONLY NEED TO BE SEIZED – SINCE ASSESSEES HAD NOT OFFERED ANY SUCH EXPLANATION, BOARD CIRCULAR WAS NOT APPLICABLE AND EXCESS JEWELLERY WAS RIGHTLY INCLUDED AS UNEXPLAINED INVESTMENT

ASSESSING OFFICER MADE ADDITION BY TREATING EXCESS JEWELLERY FOUND DURING SEARCH AS UNEXPLAINED INVESTMENT. ASSESSEES RELIED UPON BOARD INSTRUCTION NO. 1916 [F.NO. 286/63/93-IT (INV.II)], DATED 11.05.1994 FOR DELETION OF ADDITION. TRIBUNAL CONFIRMED THE ADDITION. ON APPEAL BY ASSESSE THE COURT HELD THAT ,CLAUSE (III) OF BOARD INSTRUCTION, DATED 11.05.1994 WHICH ENABLES ASSESSING OFFICER TO EXCLUDE A LARGER QUANTITY OF JEWELLERY AND ORNAMENTS FROM SEIZURE, WILL BE APPLICABLE ONLY IF THERE ARE CIRCUMSTANCES TO COME TO CONCLUSION THAT STATUS OF FAMILY AND CUSTOM AND PRACTICES OF THE COMMUNITY REQUIRE HOLDING OF SUCH JEWELLERY. ON THE FACTS SINCE ASSESSEES HAD NOT OFFERED ANY SUCH EXPLANATION, BOARD CIRCULAR WAS NOT APPLICABLE AND EXCESS JEWELLERY WAS RIGHTLY INCLUDED AS UNEXPLAINED INVESTMENT. IT WAS A CASE WHERE THE ASSESSEE WAS A WEALTH TAX PAYEE AND THEREFORE, IT WAS REQUIRED OF HIM TO SPECIFICALLY SHOW THE SOURCE OF JEWELLERY FOUND IN EXCESS OF WHAT WAS DECLARED IN THE RESPECTIVE WEALTH TAX RETURNS. IN FACT, THE CBDT CIRCULAR DATED 11.05.1994 SPECIFICALLY CONTAINS PARA (II), WHICH PRESCRIBES THAT IN THE CASE OF WEALTH TAX ASSESSEES GOLD JEWELLERY AND ORNAMENTS FOUND IN EXCESS OF THE GROSS WEIGHT DECLARED IN THE WEALTH TAX RETURNS ONLY NEED TO BE SEIZED. (RELATED ASSESSMENT YEAR: 2009-10) – [V.G.P. RAVIDAS V. CIT (2015) 370 ITR 364: 228 TAXMAN 93 (2014) 51 TAXMANN.COM 16 (MAD), V. G. SELVARAJ V. ACIT (2015) 370 ITR 364: 228 TAXMAN 93 (2014) 51 TAXMANN.COM 16 (MAD.)]

IT WAS HELD THAT IF ONE GOES WITH CBDT’S INSTRUCTION NO. 1916, DATED 11.05.1994 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. – [CIT (CENTRAL), KANPUR V. GHANSHYAM DAS JOHRI (2014) 41 TAXMANN.COM 295 (ALL)]

STREEDHAN IN THE FORM OF JEWELLERY RECEIVED DURING THE SPAN OF 25 YEAS CANNOT BE SAID TO BE UNEXPLAINED INVESTMENT UNDER SECTION 69A OF THE INCOME TAX ACT 1961

DELHI HIGH COURT IN THE CASE OF ASHOK CHADDHA V. ITO (2011) 14 TAXMANN.COM 57 WHEREIN THE HON’BLE HIGH COURT 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 “STREEDHAN” OR ON OTHER OCCASIONS SUCH AS BIRTH OF A CHILD ETC. – [ASHOK CHADDHA V. ITO (2011) 14 TAXMANN.COM 57 (DEL.)]

NO POWER/AUTHORITY UNDER SECTION 132 OF THE INCOME TAX ACT, IS VESTED WITH THE AUTHORIZED OFFICER TO SEIZE ANY BULLION, JEWELLERY OR VALUABLE ARTICLE OF THING BEING STOCK-IN-TRADE THE SAID STOCK-IN-TRADE EVEN IT REPRESENTS WHOLLY OR PARTLY UNDISCLOSED INCOME OR PROPERTY OF THE ASSESSEE

THE ASSESSEE WAS ENGAGED IN THE TRADING OF GOLD AND SILVER JEWELLERY. SEARCH AND SEIZURE OPERATION WAS CONDUCTED AT THE RESIDENTIAL-CUM-BUSINESS PREMISES OF THE ASSESSEE AND STOCK-IN-TRADE OF THE BUSINESS AND STOCK HYPOTHECATED WERE SEIZED. SECTION 132(1)(III) EMPOWERS THE AUTHORIZED OFFICER TO SEIZE ANY SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING FOUND AS A RESULT OF SUCH SEARCH WHICH REPRESENT EITHER WHOLLY OR PARTLY UNDISCLOSED INCOME OR PROPERTY OF THE PERSON. HOWEVER, THE PROVISO CARVES OUT AN EXCEPTION. IT PROVIDES 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 AUTHORIZED OFFICER SHALL MAKE A NOTE OR INVENTORY OF SUCH STOCK-IN-TRADE OF THE BUSINESS. THEREFORE, EVEN IF THE AUTHORIZED OFFICER IS OF THE VIEW THAT ANY BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING WHICH IS IN FORM OF STOCK-IN-TRADE EITHER WHOLLY OR PARTLY REPRESENTS THE UNDISCLOSED INCOME OR PROPERTY OF THE PERSON/ASSESSEE SEARCHED, HE CANNOT SEIZE THE SAME. BUT HE SHALL MAKE A NOTE OR AN INVENTORY OF SUCH STOCK-IN-TRADE OF BUSINESS. [PARA 17]. THEREFORE, THE SEIZURE OF JEWELLERY BEING STOCK-IN-TRADE BY THE AUTHORIZED OFFICER IS WHOLLY WITHOUT AUTHORITY OF LAW AND CONTRARY TO THE STATUTORY PROVISION CONTAINED IN PROVISO TO SECTION 132(1)(III) AND THIRD PROVISO TO SECTION 132(1)(V). THE HON’BLE ORISSA HIGH COURT HAS REFERRED TO CIRCULAR NO. 8 OF 2003 DATED 18.09.2003, INSTRUCTION NO. 7 OF 2003 DATED 30.07.2003 AND HELD THAT UNDER SECTION 132 OF THE ACT, NO POWER/AUTHORITY IS VESTED WITH ASSESSING OFFICER TO SEIZE ANY BULLION, JEWELLERY OR VALUABLE ARTICLE OR THING BEING STOCK-IN-TRADE EVEN IF HE COMES TO CONCLUSION THAT SAID STOCK-IN-TRADE REPRESENTS WHOLLY OR PARTLY UNDISCLOSED INCOME OR PROPERTY OF ASSESSEE. THEREFORE, THE DEPARTMENT IS DIRECTED TO RETURN THE JEWELLERY (GOLD AND SILVER ORNAMENTS) SEIZED BY THE AUTHORIZED OFFICER IN COURSE OF SEARCH FORTHWITH TO THE PETITIONER-ASSESSEE AFTER COMPLYING WITH THE REQUIREMENT PROVIDED, I.E., MAKING A NOTE OR INVENTORY. [PARA 27] – [PUSPA RANJAN SAHOO V. ASSISTANT DIRECTOR OF INCOME-TAX (INV.) (2012) 26 TAXMANN.COM 83 (ORISSA)]

SOURCE TO THE EXTENT OF THE JEWELLERY STATED IN THE CBDT INSTRUCTION 11.05.1994 STANDS EXPLAINED

THE HON’BLE GUJARAT HIGH COURT IN CIT V. RATANLAL VYAPARILAL JAIN HAS HELD (PLACITUM 10, PAGE 359):

“THOUGH IT IS TRUE THAT THE CENTRAL BOARD OF DIRECT TAXES INSTRUCTION NO. 1916, DATED 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 THE FAMILY MEMBERS OF AN ASSESSEE BELONGING TO AN ORDINARY HINDU HOUSEHOLD. THE APPROACH ADOPTED BY THE TRIBUNAL IN FOLLOWING THE SAID CIRCULAR AND GIVING BENEFIT TO THE ASSESSEE, EVEN FOR EXPLAINING THE SOURCE IN RESPECT OF THE JEWELLERY BEING HELD BY THE FAMILY IS IN CONSONANCE WITH THE GENERAL PRACTICE IN THE HINDU FAMILIES WHEREBY JEWELLERY IS GIFTED BY THE RELATIVES AND FRIENDS AT THE TIME OF SOCIAL FUNCTIONS, VIZ., MARRIAGES, BIRTHDAYS, MARRIAGE ANNIVERSARY AND OTHER FESTIVALS. THESE GIFTS ARE CUSTOMARY AND CUSTOMS PREVAILING IN A SOCIETY CANNOT BE IGNORED. THUS, ALTHOUGH THE CIRCULAR HAD BEEN ISSUED FOR THE PURPOSE OF NON-SEIZURE OF JEWELLERY DURING THE COURSE OF SEARCH, THE BASIS FOR THE SAME RECOGNIZES CUSTOMS PREVAILING IN THE 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 STATED IN THE CIRCULAR STANDS EXPLAINED. THUS, THE APPROACH ADOPTED BY THE TRIBUNAL IN CONSIDERING THE EXTENT OF JEWELLERY SPECIFIED UNDER THE SAID CIRCULAR TO BE A REASONABLE QUANTITY, CANNOT BE FAULTED WITH. IN THE CIRCUMSTANCES, IT IS NOT POSSIBLE TO STATE THAT THE TRIBUNAL HAS COMMITTED ANY LEGAL ERROR SO AS TO GIVE RISE TO A QUESTION OF LAW.” – [CIT V. RATANLAL VYAPARILAL JAIN (2011) 339 ITR 351 (GUJ)]

Question 10

TREATMENT OF JEWELLERY FOUND DURING THE COURSE OF SEARCH AND SEIZURE ACTION UNDER SECTION 132

Accepted Answer

TREATMENT OF JEWELLERY FOUND DURING THE COURSE OF SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE INCOME-TAX ACT, 1961

SECTION 132 OF THE ACT PROVIDES THAT A SEARCH AND SEIZURE ACTION CAN BE CARRIED OUT IN THE CASE OF ANY PERSON WHO IS IN POSSESSION OF ANY MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING AND SUCH MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE OR THING REPRESENTS EITHER WHOLLY OR PARTLY INCOME OR PROPERTY WHICH HAS NOT BEEN DISCLOSED OR WOULD NOT BE DISCLOSED FOR THE PURPOSE OF THE ACT. THE DEPARTMENT HAS POWER TO SEIZE ANY SUCH MONEY, BULLION, JEWELLERY OR OTHER VALUABLE ARTICLE, IF FOUND UNEXPLAINED AT THE TIME OF SEARCH. MOST COMMONLY, DURING THE COURSE OF SEARCH ACTION, JEWELLERY IS SEIZED FROM EITHER THE RESIDENTIAL PREMISES OR THE BANK LOCKER. IN THIS ARTICLE, WE WILL ELABORATELY DISCUSS ALL THE POSSIBLE ACTION AGAINST THE SEARCHED PERSON(S) IN RESPECT OF JEWELLERY FOUND DURING THE COURSE OF SEARCH.

THERE IS NO LIMIT ON HOLDING OF GOLD JEWELLERY OR ORNAMENTS BY ANYBODY PROVIDED IT IS ACQUIRED FROM EXPLAINED SOURCES OF INCOME INCLUDING INHERITANCE. THIS MEANS THAT LEGITIMATE HOLDING OF JEWELLERY UP TO ANY EXTENT IS FULLY PROTECTED.

POWER OF AUTHORISED OFFICER TO SEIZE JEWELLERY DURING THE COURSE OF SEARCH UNDER SECTION 132 OF THE ACT

THE POWER OF THE AUTHORISED OFFICER TO SEIZE JEWELLERY DURING THE COURSE OF SEARCH IS DERIVED FROM SECTION 132(1)(III), WHICH PROVIDES THAT THE AUTHORIZED OFFICER SHOULD SEIZE ANY SUCH BOOKS OF ACCOUNT, OTHER DOCUMENTS, MONEY, BULLION, JEWELLERY, OR OTHER VALUABLE ARTICLE OR THING FOUND AS A RESULT OF SUCH SEARCH. HOWEVER, AS PER THE PROVISO TO THE SAID CLAUSE, ANY 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.

GOVERNMENT OF INDIA

MINISTRY OF FINANCE DEPARTMENT OF REVENUE

CENTRAL BOARD OF DIRECT TAXES,

NEW DELHI, 01 DECEMBER, 2016.

PRESS RELEASE

SUBJECT : TAXATION LAWS (SECOND AMENDMENT ) BILL, 2016 – REGARDING

IN THE WAKE OF TAXATION LAWS (SECOND AMENDMENT) BILL, 2016 WHICH HAS BEEN PASSED BY LOK SABHA AND IS UNDER CONSIDERATION WITHRAJYASABHA, SOME RUMOURS HAVE BEEN MAKING ROUNDS THAT ALL GOLD JEWELLERY INCLUDING ANCESTRAL JEWELLERY SHALL BE TAXED @75% PLUS CESS WITH A FURTHER PENALTY LIABILITY OF 10% OF TAX PAYABLE.

2. IT IS HEREBY CLARIFIED THAT THE ABOVE BILL HAS NOT INTRODUCED ANY NEW PROVISION REGARDING CHARGEABILITY OF TAX ON JEWELLERY. THE BILL ONLY SEEKS TO ENHANCE THE APPLICABLE TAX RATE UNDER SECTION 115BBE OF THE INCOME-TAX ACT, 1961 (THE ACT) FROM EXISTING 30% TO 60% PLUS SURCHARGE OF 25% AND CESS THEREON.THIS SECTION ONLY PROVIDES RATE OF TAX TO BE CHARGED IN CASE OF UNEXPLAINED INVESTMENT IN ASSETS. THE CHARGEABILITY OF THESE ASSETS AS INCOME IS GOVERNED BY THE PROVISIONS OF SECTION 69, 69A & 69B WHICH ARE PART OF THE ACT SINCE 1960S. THE BILL DOES NOT SEEK TO AMEND THE PROVISIONS OF THESE SECTIONS. TAX RATE UNDER SECTION 115BBE IS PROPOSED TO BE INCREASED ONLY FOR UNEXPLAINED INCOME AS THERE WERE REPORTS THAT THE TAX EVADERS ARE TRYING TO INCLUDE THEIR UNDISCLOSED INCOME IN THE RETURN OF INCOME AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. THE PROVISIONS OF SECTION 115BBE APPLY MAINLY IN THOSE CASES WHERE ASSETS OR CASH ETC. ARE SOUGHT TO BE DECLARED AS ‘UNEXPLAINED CASH OR ASSET’ OR WHERE IT IS HIDDEN AS UNSUBSTANTIATED BUSINESS INCOME, AND THE ASSESSING OFFICER DETECTS IT AS SUCH.

3. IT IS CLARIFIED THAT THE JEWELLERY/GOLD PURCHASED OUT OF DISCLOSED INCOME OR OUT OF EXEMPTED INCOME LIKE AGRICULTURAL INCOME OR OUT OF REASONABLE HOUSEHOLD SAVINGS OR LEGALLY INHERITED WHICH HAS BEEN ACQUIRED OUT OF EXPLAINED SOURCES IS NEITHER CHARGEABLE TO TAX UNDER THE EXISTING PROVISIONS NOR UNDER THE PROPOSED AMENDED PROVISIONS. IN THIS CONNECTION, A REFERENCE TO INSTRUCTION NO.1916 IS ALSO INVITED WHICH PROVIDES THAT DURING THE SEARCH OPERATIONS, NO SEIZURE OF 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 SHALL BE MADE. FURTHER, LEGITIMATE HOLDING OF JEWELLERY UPTO ANY EXTENT IS FULLY PROTECTED.

4. IN VIEW OF THE ABOVE, THE APPREHENSION SOUGHT TO BE CREATED THAT THE JEWELLERY WITH THE HOUSEHOLD WHICH IS ACQUIRED OUT OF DISCLOSED SOURCES OR EXEMPTED INCOME SHALL BECOME TAXABLE UNDER THE PROPOSED AMENDMENT IS TOTALLY UNFOUNDED AND BASELESS.

(MEENAKSHI J. GOSWAMI)

COMMISSIONER OF INCOME TAX (MEDIA AND TECHNICAL POLICY)

OFFICIAL SPOKESPERSON, CBDT.

GOVERNMENT OF INDIA

MINISTRY OF FINANCE DEPARTMENT OF REVENUE

CENTRAL BOARD OF DIRECT TAXES,

NEW DELHI, 01 DECEMBER, 2016.

PRESS RELEASE

SUBJECT : CLARIFICATIONS WITH RESPECT TO GOLD JEWELLERY UNDER INCOME TAX LAW