The amount of gold jewellery found during an Income Tax search cannot be treated as unexplained merely because it is not immediately backed by purchase records, the Income Tax Appellate Tribunal (ITAT), Nagpur Bench, has ruled.
The decision came in the case of Nirmal Kumar Agrawal v. ACIT, Central Circle-2(1), Nagpur, where a search at the home of a chartered accountant led to the discovery of 2.434 kg of jewellery worth ₹90.59 lakh.
₹50 lakh tax addition made initially
The search was conducted on July 26, 2016. Income Tax officials found 2,434 grams of jewellery and ₹7.06 lakh in cash. Jewellery weighing 1,314 grams, along with ₹5 lakh in cash, was seized.
The Assessing Officer later added ₹50 lakh under Section 69A of the Income-tax Act, treating the jewellery as unexplained.
The taxpayer challenged the addition. The Commissioner of Income Tax (Appeals) provided substantial relief but retained an addition of ₹3.86 lakh relating to four jewellery items weighing 158 grams gross and 104.70 grams net.
Agrawal then approached the ITAT.
Jewellery gifted to wife accepted
The Tribunal noted that jewellery found at a shared family residence does not automatically belong to the person being searched.
Two disputed items weighing 55.8 grams and valued at ₹2.58 lakh were claimed by Agrawal's wife. She had explained that her parents gifted the jewellery following the birth of their two daughters.
The valuation report also recorded the items in her name. The Tribunal accepted the explanation, noting that such gifts on important family occasions were customary and that there was no evidence showing Agrawal had purchased the jewellery.
Tribunal considers 48.9 grams reasonable
Agrawal's own jewellery amounted to 121.5 grams. Of this, 72.6 grams was purchased through banking channels between 2008 and 2011 and were recorded in his books.
The remaining 48.9 grams was considered by the Tribunal in light of his family circumstances. Agrawal was 41, was married for 15 years, had two daughters and was a practising chartered accountant.
The Tribunal noted that 48.9 grams was below the 100-gram benchmark for a male family member mentioned in CBDT Instruction No. 1916.
What taxpayers should know
The ruling does not establish a blanket exemption allowing people to keep unlimited gold at home. Instead, it underlines the importance of establishing ownership, source and family circumstances.
The Tribunal also ruled that the enhanced 60 per cent tax rate under Section 115BBE could not apply because the search took place before the higher rate came into force.
The taxpayer's appeal was consequently allowed.