Vide CBDT Instruction no. 1916 dated 11-05-1994, it has been clarified that no seizure should be made by the Search Party of the Jewellery and Ornaments found during the course of search proceedings under Section 132, where the same have been duly declared in the Wealth-tax Returns filed by the taxpayer or where such ornaments are within the prescribed limits of 100, 250 or 500 grams as stated in the said instruction. The aforesaid instruction is reproduced herein under:-
“Guidelines for seizure of jewellery and ornaments in course of search
Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations 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 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 authorised officer may, having regard to the status of the family, and the custom 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 authorising the search at 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.
These guidelines may please be brought to the notice of the officers in your region.
Instruction : No. 1916, dated 11-5-1994.”
Even where no seizure is made during the Search, following the spirit of the aforesaid instructions of the CBDT, in several cases, Assessing Officers, while finalizing the post-search assessments, make additions treating such Jewellery and Ornaments as undisclosed investment, on the ground that the taxpayer does not possess adequate evidence for acquisition of the same.
Issue for Consideration
Instruction No. 1916 (F.No. 286/63/93-IT(INV.II), dated 11-5-1994, issued by the Central Board of Direct Taxes (‘CBDT’) directs the income tax authorities, conducting a search, to not seize jewellery and ornaments found during the course of search of varying quantities specified in the instructions, depending upon the marital status and the gender of a person searched. The guidelines are issued to address the instances of seizure of jewellery of small quantity in the course of search operations u/s. 132 that have been noticed by the CBDT. A common approach is suggested in situations where search parties come across items of jewellery for strict compliance by the authorities. The CBDT directed that 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.
The High Courts, under the circumstances, relying on the above referred instructions of the CBDT, has consistently held that the possession of the jewellery and ornaments to the extent of the quantities specified in the instruction is to be treated as reasonable and therefore explained and should not be the subject matter of additions in assessment of the total income of a person. However, the Chennai High Court has sounded a slightly discordant note to this otherwise rational view accepted by various high courts.
Satya Narain Patni’s case
The issue, in the recent past had come up for the consideration of the Rajasthan High Court in the case of CIT vs. Satya Naraain Patni, 46 taxmann.com 440.
A search u/s. 132 was carried out at the business and residential premises of the assessee on 30-06-2004. During the course of search, gold jewellery weighing 2,202.464 gms. valued at Rs.10,53,520/- and silver items valued at Rs.93,678/-were found. Looking to the status of the assessee and the statement given during the course of the search operation by various family members and considering the fact that there were four married ladies in the house, including the wife of the assessee, no jewellery was seized by the authorised officer.
In assessment of the income, however, the jewellery to the extent of 1,600 gms was treated as reasonable by the AO. The balance jewellery weighing 602.464 gms was treated as unexplained in the absence of any satisfactory explanation from the assessee and the value of the same which was determined at Rs. 2,88,176/-, was added back to the income of the assessee, treating the same as purchased out of Income from undisclosed sources of the assessee. In an appeal by the assessee, the Commissioner(Appeals), deleted the additions made by the AO of the value of the jewellery to the tune of Rs. 2,88,176/-. The Tribunal, on appreciation of facts and evidence available on record, also confirmed the order of CIT (A).
The Revenue, in the appeal before the Rajasthan High Court, contended that the AO had given due credit for the jewellery belonging to the various family members; that almost 75% of the jewellery found was treated as explained by the AO himself; only where the assessee or family members were not in a position to explain the balance jewellery, the addition was made; that the assessee or/and other family members were not in a position to adequately explain the source of receipt of aforesaid jewellery and it was the duty of the assessee to lead proper evidence, but since no evidence was led, the AO after giving due credit for 1,600 gms. of jewellery, and being not satisfied with the balance, made the addition which was correct and justified; that the circular of the Board referred to by the tribunal dated 11-05-1994, simply laid down that in case a person was not assessed to wealth tax, then in that case, 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, but that did not mean that the AO was debarred from questioning the possession of the items found; that the circular emphasised only that jewellery would not be seized. However, the AO was duty bound to seek explanation of owning and possessing of such jewellery. The Rajasthan High Court, on due consideration of the facts of the case. and importantly, relying on the Instruction No. 1916 of the CBDT, dismissed the appeal of the Income tax Department by holding as under;
“12. It is true that the circular of the CBDT, referred to supra dt. 11/05/1994 only refers to the jewellery 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 and it does not speak about the questioning of the said jewellery from the person who has been found with possession of the said jewellery. However, the Board, looking to the Indian customs and traditions, has fairly expressed that jewellery to the said extent will not be seized and once the Board is also of the express opinion that the said jewellery cannot be seized, it should normally mean that any jewellery, found in possesion of a married lady to the extent of 500 gms, 250 gms per unmarried lady and 100 gms per male member of the family will also not be questioned about its source and acquisition. We can take notice of the fact that at the time of wedding, the daughter/ daughter-in-law receives gold ornaments jewellery and other goods not only from parental side but in-laws side as well at the time of 'Vidai' (farewell) or/and at the time when the daughter-in-law enters the house of her husband. We can also take notice of the fact that thereafter also, she continues to receive some small items by various other close friends and relatives of both the sides as well as on the auspicious occasion of birth of a child whether male or female and the CBDT, looking to such customs prevailing throughout India, in one way or the another, came out with this Circular and we accordingly are of the firm opinion that it should also mean that to the extent of the aforesaid jewellery, found in possession of the various persons, even source cannot be questioned.
It is certainly 'Stridhan' of the woman and normally no question at least to the said extent can be made. However, if the authorized officers or/and the Assessing Officers, find jewellery beyond the said weight, then certainly they can question the source of acquisition of the jewellery and also in appropriate cases, if no proper explanation has been offered, can treat the jewellery beyond the said limit as unexplained investment of the person with whom the said jewellery has been found.”
The High Court noted that, looking to the status of the family and the jewellery found in possession of four ladies, the quantum of jewellery was held to be reasonable and therefore, the authorised officers, in the first instance, did not seize the said jewellery as the same was within the tolerable limit or the limits prescribed by the Board. Thus, in the view of the court, subsequent addition was held to be not justified and was thus rightly deleted by both the two appellate authorities, namely, Commissioner(Appeals) as well as the tribunal.
V. G. P. Ravidas’ case
The Chennai High Court in the case of V.G.P. Ravidas vs. ACIT, 51 taxmann.com 16, offered certain observations that are found to be inconsistent with the near unanimous view of the High Court that the possession of the jewellery and ornaments, to the extent of the quantities specified by the CBDT, should be held to be explained.
In this case, the assessees filed the original return of income for the assessment year 2009-2010 on 30-09- 2009. The Assessing Officer, pursuant to a search u/s. 132, reopened the assessment and a reassessment was completed by him on 29-12-2010. The AO in so assessing the income, treated excess gold jewellery found and seized, of 242.200 gms. and 331.700 gms. respectively, as the unexplained income.
The assessees appeals before the Commissioner (Appeals), were dismissed. The Tribunal confirmed the order passed by the Commissioner (Appeals). In the appeal before the High Court, the short question that arose for consideration was whether the assessees in both the cases were entitled to plead that the quantum of excess gold jewellery seized did not warrant inclusion in the income of the assessees as unexplained investment in the light of the Board Instruction No.1916 F.No.286/63/93-IT (INV.II)], dated 11-05-1994.
The Chennai High Court while dismissing the appeals, on the facts of the case before it, inter alia observed in paragraph 10 of its order as under;
“10. The Board Instruction dated 11.5.1994 stipulates the circumstances under which excess gold jewellery or ornaments could be seized and where it need not be seized. It does not state that it should not be treated as unexplained investment in jewellery. In this case, ..................
The High Court also approved the observations of the Commissioner(Appeals) in paragraph 8 of its order as follows;
“8. The Commissioner of Income Tax (Appeals) as well as the Tribunal came to hold that since there was no explanation offered by the assessees before the Assessing Officer or Commissioner of Income Tax (Appeals) or Tribunal, their mere placing reliance on the Board Instruction No. 1916 [F.No.286/63/93-IT (INV.II)], dated 11.5.1994 will be no avail. In fact, the Commissioner of Income Tax (Appeals) has correctly held that the Board Instruction does not make allowance in calculation of unexplained jewellery and it only states that 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. Whereas, ------“
The divergent view of the Chennai High Court, in paragraphs 8 and 10 of the its order in the case of V. G. P. Ravidas, suggest that the Instruction No. 1916 has a limited application and should be applied by the search authorities in deciding whether the jewellery & ornaments found during the search to the extent of the specified quantities be seized or not. Such divergent view of the judiciary appears to be suggesting that the scope of the instructions is not extended to the assessment of income and an assessee therefore cannot simply rely on the said instructions to plead that the possession of the jewellery to the extent of the specified quantity be treated as explained. An outcome of the observations of the High Court, is that an assessee is required to explain the possession of the jewellery in assessment of the income to the satisfaction of the AO independent of the fact that the jewellery was not seized and has to lead evidences in support of its possession though for the purposes of seizure, its possession was found to be reasonable by the search authorities.
Nothing can highlight the conflict better than the interpretation sought to be placed by the two different authorities of the Income tax Department. One of them, the search authority, does not seize the jewellery on the understanding that the possession thereof within the specified quantities is reasonable in the context of customs and practises prevailing in India while the another of them, the assessing authority, does not accept the possession as reasonable and puts the assessee to the onus of explaining the possession of the jewellery found to his satisfaction and failing which he proceeds to add the value thereof to his total income.
The conflicting stand of the authorities belonging to the different departments of the same set up also highlights the pursuit of petty aims ignoring the larger interest of administration of justice by adopting a highly technical approach, best avoided in implementing the revenue laws. The Gujarat High Court in CIT vs. Ratanlal Vyaparilal Jain, the Allahabad High Court in Ghanshyam Das Johri’s case, 41 taxmann.com 295 and the Rajasthan High Court in yet another case, Kailash Chand Sharma 198 CTR 271 have consistently held that the possession of the jewellery of the quantities specified in the instruction issued by the CBDT is reasonable and therefore should be held to be explained in the hands of asesseee and should not be the subject matter of addition by the AO on the ground that the asseseee was unable to explain the possession thereof to his satisfaction.
The Rajasthan High Court in Patni’s case and the other High Courts before it, rightly noted that considering the practices and the customs prevailing in India of gifting and acquisition of jewellery and ornaments since birth and even before birth, it is not only common but is reasonable for an Indian to possess the jewellery of the specified quantity. The question of applying another yardstick for determining the reasonability in assessment does not arise at all.
The CBDT in fact a goes a step further in its human approach to the issue under consideration, in paragraph (iii) of the said instructions, when it permits the search party to not seize even such jewellery that has been found to be excess of the specified quantities in paragraph(ii) where the search authorities are satisfied that depending upon the status of the family and community customs and practices, the possession of such jewellery was reasonable. The said paragraph reproduced here clearly settles the issue in favour of accepting what has not been seized as duly explained for the purposes of assessment as well.
“(iii) The authorized officer may, having regard to the status of the family, and the custom 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 authorising the search at the time of furnishing the search report.”
This grace of the CBDT clearly confirms that the search authorities do make a spot assessment of the reasonability of possession. It is therefore highly improper, on a later day, for the assessing authority, to take a dim view of the reasonability. It is befitting that the AO allows the grace to percolate downstream to the case of assessment, as well. It’s high time that the CBDT should issue clear directions to Assessing Officers not to make any additions in such cases. It needs to be pointed out that several judicial pronouncements have also granted relief to taxpayers relying on the aforesaid instructions.