2018 (1) TMI 21 - AT - Income Tax

Tribunal rules in favor of assessee on jewellery valuation, citing CBDT Instruction No. 1916.

The Tribunal allowed the appeal of the assessee, holding that no addition should have been made on account of gold and diamond jewellery. The jewellery ... Seizure of jewellery in the course of search - treatment of jewellery as explained for assessment purposes - gross weight comparison as criterion for jewellery seizure - undisclosed jewellery under Section 132(1)(c) and scope of seizure under Section 132(1)(iii) - applicability of CBDT Instruction No.1916 dated 11.05.1994 to assessment under Section 69A - quasi judicial duty of tax authorities to act fairlyApplicability of CBDT Instruction No.1916 dated 11.05.1994 to assessment under Section 69A - gross weight comparison as criterion for jewellery seizure - treatment of jewellery as explained for assessment purposes - undisclosed jewellery under Section 132(1)(c) and scope of seizure under Section 132(1)(iii) - quasi judicial duty of tax authorities to act fairly - Addition under Section 69A in respect of jewellery found in search was not sustainable and was deleted - HELD THAT: - The Tribunal found that the family's declared gross weight of diamond jewellery (1876.11 gms) exceeded the gross weight of diamond jewellery found during search (1650.10 gms) and that this fact was accepted by the Department (para 7). CBDT Instruction No.1916 (11.05.1994) governs seizure of jewellery in searches and, as interpreted in the judgment, the power to seize under Section 132(1)(iii) is linked to the undisclosed jewellery described in Section 132(1)(c); hence jewellery not liable to seizure under the Instruction cannot be treated as undisclosed for assessment purposes (paras 8, 26-28). The Instruction prescribes gross weight (rather than item by item matching) as the decision criterion for wealth tax assessees, recognising remaking and social customs, and permits exclusion of larger quantities taking into account family status and customs (paras 31-31, 30). The Assessing Officer adopted an item by item comparison and rejected the assessee's explanations (remaking, gifts, and flaws in Departmental valuer's description) without adequate reasons (paras 33, 35-38). The Tribunal held that, because seizure was not permissible under the Instruction in respect of jewellery within declared gross weight, the addition under Section 69A could not be sustained; further, tax authorities must exercise quasi judicial powers fairly and not in a manner prejudicial to the assessee (paras 28, 34). Applying these principles to the facts and taking account of the family's status and customs, the Tribunal found no merit in the additions made in respect of gold and diamond jewellery and allowed the appeal (paras 39-42). [Paras 36, 38, 39, 41, 42]Addition on account of alleged undisclosed jewellery was deleted and the assessee's appeal was allowed.Final Conclusion: The Tribunal held that CBDT Instruction No.1916 (11.05.1994) governs the criteria for seizure and, where declared gross weight of jewellery exceeded the jewellery found in search, seizure and consequent addition under Section 69A were not permissible; appeal allowed for A.Y.2012-13. Issues Involved:1. Addition of Rs. 22,57,632 on account of jewellery under Section 69A of the Income Tax Act, 1961.2. Validity of seizure and assessment of jewellery based on CBDT Instruction No. 1916 dated 11.05.1994.Issue-Wise Detailed Analysis:1. Addition of Rs. 22,57,632 on account of jewellery under Section 69A of the Income Tax Act, 1961:The primary issue in this appeal concerns the addition of Rs. 22,57,632, which was upheld by the CIT(A) as undisclosed jewellery under Section 69A of the Income Tax Act, 1961. The jewellery found during the search operation did not match the items disclosed in the valuation report of the year 2000, which formed the basis of the Wealth Tax returns of the assessee. The assessing officer conducted an item-by-item tally to reach this conclusion. However, the jewellery found during the search belonged to three members of the family, but only one inventory was drawn without identifying ownership.The assessee argued that the jewellery found was within the declared limits in the Wealth Tax returns and valuation reports, which showed a total holding of 3124.81 grams, while the jewellery found during the search was 2997.50 grams. Therefore, no addition should have been made as the gross weight of declared jewellery exceeded the gross weight of jewellery found during the search.2. Validity of seizure and assessment of jewellery based on CBDT Instruction No. 1916 dated 11.05.1994:The assessee contended that as per CBDT Instruction No. 1916 dated 11.05.1994, no jewellery should have been seized or added to the income if the gross weight of the jewellery found did not exceed the declared weight in the Wealth Tax returns. This instruction was intended to ensure that jewellery within the declared limits should not be treated as unexplained for the purposes of the Income Tax Act.The Special Bench of Ahmedabad ITAT, in the case of Rameshchandra R. Patel (89 ITD 203), explained that the instruction implied that jewellery within the declared limits should be treated as explained. Similarly, the Hon'ble Gujarat High Court in Ratanlal Vyaparilal Jain (339 ITR 351) and the Hon'ble Karnataka High Court in Smt. Patidevi (240 ITR 727) upheld that jewellery within the prescribed limits should not be added to income, recognizing customs prevailing in Hindu society.The ITAT Mumbai, in cases like Rafiq Mohd. Nazir Shaikh (ITA No. 465/Mum/2012) and Harak Chand N. Jain (101 Taxman 324), followed this premise, treating jewellery within the declared limits as explained. The Hon'ble Allahabad High Court in Ghanshyamdas Johari (41 Taxmann.com 295) also confirmed that no addition could be made if the jewellery was within the parameters defined by the Circular.The Tribunal noted that the assessing officer should have compared the gross weight of the jewellery instead of an item-by-item comparison. The CBDT Instruction 1916 required the assessing officer to consider the gross weight of the jewellery, which he failed to do, resulting in undue tax upon the assessee. The Tribunal emphasized that justice must be done in a quasi-judicial manner, as held by the Supreme Court in Simon Carves Ltd (105 ITR 212).The Tribunal found that the objections raised by the assessee regarding the remaking of jewellery, gifts received, and the manner of valuation during the search were acknowledged but dismissed without proper reasoning. The CIT(A) also dismissed the claim of gifts without justifiable grounds.Considering the status of the family, customs, and practices of the community, the Tribunal concluded that the benefit of CBDT Instruction 1916 dated 11th May 1994 should be extended to the assessee. Consequently, the Tribunal found no merit in the addition made on account of gold and diamond jewellery.Conclusion:The Tribunal allowed the appeal of the assessee, holding that no addition should have been made on account of gold and diamond jewellery, as the jewellery found was within the declared limits in the Wealth Tax returns, and the CBDT Instruction No. 1916 dated 11.05.1994 warranted treating the jewellery as explained. The order was pronounced in the open court on 22/12/2017.