CBDT instructions on seizure of jewellery & ornaments are discretionary

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(Last Updated On: April 10, 2018)

CBDT instructions on seizure of jewellery and ornaments are discretionary

ITAT Indore

Shri Keshav Lila Vs. Assistant Commissioner of Income Tax-1(2) 

ITA No. 935/Ind/2016

Date of Judgement/Order : 19/01/2018

Related Assessment Year : 2011-12

CBDT instructions which in our view provides a guideline to the search conducting team that no seizure should be made of the jewellery and ornaments found during the course of search proceedings u/s 132 of the Act, if the same have been duly declared in the wealth tax returns filed by the tax payer or where such ornaments are within the prescribed limits of 500, 250 or 100 grams as stated in the said

Now turning towards the facts of the present appeal we find that out of total seized jewellery of Rs. 22,65,625/- (being the value of seized jewellery as on the date of search), we find that the assessee has been successful enough to explain the jewellery worth Rs. 17,59,500/- on account of following;

(i) Diamond jewellery belonging to assessee’s wife purchased in 1993 for Rs. 2,16,000/- (duly shown in the balance sheet) which values at Rs. 10,77,000/- as on date of search.

(ii) secondly the Gold jewellery weighing around 350 grams which the assessee received as per will of her grand mother in 1993 which is also shown in the balance sheet at a cost of Rs. 1,60,930/-.

As regards the remaining unexplained amount of jewellery worth Rs. 5,06,000/- the Ld. Counsel has given general submission that they belongs to the wife of the assessee which is a part of streedhan. We find that CBDT instruction No. 1916 provides relief to the assessee if he is wealth tax assessee and has declared the gold jewellery ornaments in the wealth tax report and in other cases the limit of gold ornaments weighing 500 grams to the per married lady, 250 grams for unmarried lady and 100 grams per male member is provided. The instructions are just guidelines and the search party are at the discretion to decide it from case to case.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal filed by the Assessee is directed against the order of ld. Commissioner of Income-tax (Appeals)-31, New Delhi Camp, Bhopal [in short referred to as the CIT (A)] dated 30.06.2016 arising out of the order u/s 143(3) of the Income Tax Act dated 25.03.2013 framed by the Income Assistant Commissioner of Income Tax- 1(2), Bhopal pertaining to Assessment Year 2011- 12.

2. Briefly stated facts as culled out from the records are that the assessee is an individual and derives income from salary, income from other sources and agriculture income. He is Director of Lilasons Industries Limited, Aurangabad. Return of income for the Assessment Year 2011-12 was filed on 29.07.2011 showing total income of Rs. 11,89,296/-. A search u/s 132 of IT Act, 1961 was conducted at his residential premises as well as on the premises of his other concerns/business associates. Notices u/s 153A of the Act dated 31.12.2012 was issued to the appellant for reopening the case u/s 147 of the Act. Against the said notice the appellant filed the return showing the same income of Rs. 11,89,296/- and agriculture income of Rs. 3,02,432/-. The assessment was completed at the income of Rs. 34,54,921/- and agriculture income of Rs. 3,02,432/- by making addition of Rs. 22,65,625/- against ornaments and jewellery found during the course of search.

3. Aggrieved by this, the assessee preferred an appeal before the Ld.CIT(A) but could not succeed.

4. Now the assessee is in appeal before the Tribunal pressing following grounds of appeal.

1. That on the facts and in the circumstances of the case the Ld. CIT(A) erred in confirming the action of Assessing Officer by reopening the case u/s 147 though under the facts and circumstances of the case, the reopening is unjustified, unwarranted and bad in law.

2. That on the facts and in the circumstances of the case the Ld. CIT(A) erred in confirming the addition of Rs. 22,65,625/-for ornaments, jewellery and silver found during the course of search without considering the explanation offered by the assessee and without considering the fact that the entire jewellery found belongs to the wife and mother of the appellant and the necessary evidences were filed for the same.

3. That on the facts and in the circumstances of the case the Ld. CIT(A) erred in not considering the fact that the entire jewellery belongs to the family members including wife and mother and the same is within the permissible limit which an Indian lady can possess as their stridhan and hence due credit should be given for the same”.

5. First we take up Ground No. 1 wherein assessee has challenged the validity of reopening of case u/s 147 of the Act.

6. The Ld. Counsel for assessee referring to the submissions made before the lower authorities submitted that the reassessment proceedings u/s 147 r.w.s 143 are bad in law and liable to be quashed.

7. On the other hand the Ld. Departmental representative supported the order of lower authorities.

8. We have heard the rival contentions and perused the records placed before us. In this ground the assessee has challenged the proceedings of reopening u/s 147 of the Act. We observe that in the instant appeal search u/s 132 of Act was conducted at the residential premises of the assessee who is the Director of Lilason Search was also conducted of the total group i.e. business concerns, sister concerns, various Directors and persons related to these concerns. During the course of search jewellery valuing Rs. 22,65,625/- was found and the assessee was unable to correlate the source of the total jewellery found during the income tax raid.

9. We therefore in the given circumstances of the case as well as respectfully following the judgments referred by Ld. CIT(A) find no reason to interfere in the findings of Ld. CIT(A) holding the assessment proceedings u/s 147 of the Act as valid, by observing as follows;

“4.2 I have considered the findings recorded by the Ld. AO as per the assessment order, the submission filed by the appellant and the facts of the case on record. Section 147 of the Act enables the AO to reopen an assessment after expiry of four years, if the AO has ‘reason to believe’ that by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, an income asses sable to tax has escaped assessment. Explanation 1 to proviso of section 147 further clarifies that production before the AO of books of accounts and other evidence does not exonerate the assessee from the duty to made full and true disclosure of material fact, if some material necessary for assessment lay embedded in books of accounts or other evidence which the AO could have uncovered with due diligence but did not. Then, production of account books or other evidence will not tantamount to full and true disclosure of material facts. For the sake of convenience, Explanation 1 below proviso to section 147 is reproduced as under:

“Explanation 1 – Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso”.

4.3 It is well settled principle of law that AO should have material on the basis of which he could form a bonafide belief that the income as asses sable to tax has escaped assessment for the relevant assessment year. It is necessary to refer to some of the relevant decisions of Hon’ble Court and High Courts in regard to the meaning of the word ‘reasons to believe’ for the purpose of reopening of assessment as mentioned below:

(i) HA Hanji & Co vs. ITO (1979) 120 ITR 593

(ii) Sheo Singh vs. AAC (1971) 82 ITR

(iii) Sri Krishna (P) Ltd vs. ITO (1966)221 ITR 538

(iv) Raymond Woollen Mills Ltd. vs. ITO (1999)236 ITR 34 (SC)

(v) S. Narayanappa vs. CIT (1967) 63 ITR 219 at page 222 (SC)

(vi) Ganga Saran & Sons (P) Ltd vs. ITO (1981) 130 ITR 1 at page 11

(vii) Phool Chand Bajranglal vs. ITO (1993)203 ITR 456 at 477

4.3.1 Hon’ble Supreme Court in the case of Kalyanji Mavji and Co.v Commissioner of Income-tax (102 ITR 287) has held that the reassessment was valid in law in as much as the Assessing Officer proceeded on the basis of information which came to him after the original assessment by fresh facts revealed in the assessment proceedings for another year. It was further held that the word “information” in section 34(1)(b) is of the widest amplitude and comprehends a variety of factors. Information may come from external sources or even from the materials already on record or may be derived from the discovery of new and important matter or fresh facts.

4.3.2 In the case of Syal Leasing Ltd. v. Assistant Commissioner of Income-tax (266) ITR 639), the Hon’ble Punjab and Haryana High Court has held that in view of the findings recorded by the Assessing Officer in the case of the assessee for a subsequent assessment year, the Assessing Officer had sufficient reason to believe to issue a notice under section 148 of the Act for an earlier assessment year.

4.3.3 Hon’ble Madras High Court in the case of Virudhunagar Co- operative Milk Supply Society Ltd v. Commissioner of Income-tax (183 ITR 545) has held that facts discovered during the assessment proceedings of a subsequent year would constitute “information” within the meaning of section 147(b) of the Income-tax Act, 1961, and reassessment proceedings based on such information is valid.

4.3.4 It has been widely held by various courts including the Hon’ble Apex Court that the reopening of assessment is valid on the basis of decision which subsequently comes to the knowledge of the AO. A mention may be made of the following cases:

– Sarabhai M Lakhani 243 ITR 1 (SC); and

– ALA Firm 189 ITR 285 (SC).

4.3.5 Further reliance in this regard is placed on the decisions in the cases of ITO v Selected Dalurband Coal Co. P. Ltd (1996) 217 ITR 597 (SC) and Raymond Woollen Mills Ltd. v ITO (1999) 236 ITR 34 (SC) where the ratio laid down is clearly applicable on the case under consideration.

4.4 The legal principles that merge from the aforementioned decisions may be summarized as under:-

– That for valid reopening of assessment after four years, the AO should have reason to believe that the income of the assessee has escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It is a condition precedent for assumption of jurisdiction under 147(1).

– The condition that the AO has reason to believe that the income of the assessee had escaped assessment is question of jurisdiction can always be investigated by Court. The word ‘has reason to believe’ in section 147 are stronger than the words ‘is satisfied’. The belief entertained by the AO must not be arbitrary or irrational. ~t must be reasonable or in other words, it must be based on reasons which are relevant and material.

– The belief of the Officer should not be a product of imagination or There must be reason to induce the belief. The belief must be of an honest and reasonable person based upon reasonable grounds.

– The Officer may act on direct or circumstantial evidence, but his belief must not be based on mere suspicion, gossip or rumor.

– The belief that is required for reopening of assessment is that of the AO. The sufficiency of reasons for the belief cannot be investigated by the Court.

– At the time of issuing of reassessment notice, it is not necessary for the AO to come to a conclusive finding that the income escaped Such belief obviously at that stage is a tentative belief on the material before him to be examined and scrutinized on such evidence as may be available in the proceedings for reassessment. But there must be some ground for reasonable belief that there had been a non-disclosure etc. of material facts resulting in escapement of income.

– For determining whether initiation of reassessment proceeding was valid, it is only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case.

The sufficiency or the correctness of the material is not a thing to be considered at this stage. Since the belief is that of the AO, the sufficiency of the reasons of forming the belief is not for the Court to judge.

4.5 The question before me is that as to whether on the basis of facts of this case, the AO had reason to believe that income had escaped assessment or not. I have referred to various decisions of Hon’ble Supreme Court wherein it has been specifically laid down that power to reopen an assessment by the AO is subject to condition that he has reason to believe that income has escaped assessment. ~t is also established from judicial principles laid down by Hon’ble Apex Court that formation of belief need not necessarily result into reassessment. A material sufficient for formation of belief need not be sufficient for making assessment or reassessment. Taking the totality of the facts and circumstances of this case into consideration and in light of the legal principle laid down by Hon’ble Supreme Court referred to earlier in this order, I am of the considered view that AO has not committed any error in facts and in law while issuing the notice u/s 148 and was justified informing a belief that the income of the appellant had escaped assessment for the assessment year under consideration. In the case of ITO vs. Biju Patnaik (1991) 188 ITR 247, the Apex Court has sounded the note of caution that at the stage of notice under section 147/148 of the Act, the Court is not to go into the merits of the controversy whether a particular income is taxable. Taking, the totality of the facts and circumstances of this case into consideration, I uphold the reopening of assessment u/s 148. Therefore, the ground No. 1 of the appeal is dismissed”.

10. In the result Ground No. 1 of the assessee is dismissed.

11. Ground No. 2 and 3 relates to the addition of Rs. 22,65,625/- for gold ornaments, diamond jewellery and silver found during the course of search. These included 614.25 (net weight) of gold jewellery, diamond jewellery of 30 carrats and 3 carrots and silver ornaments weighing 2000 grams (net weight).

12. The Ld. Counsel for the assessee submitted that both the lower authorities failed to appreciate that out of total jewellery 350 grams of gold jewellery were received through “WILL” from assessee’s mother in law in the year 1993 and as a token of evidence copy of balance sheet reflecting the said gift are enclosed and were also submitted before the search party. Further, part of the jewellery was purchased by the assessee’s wife Smt. Manileela amounting to Rs. 2,16,000/-. Assessee’s mother was also staying with him and the seized jewellery also included some portion of the jewellery owned by her. Reference was also made to CBDT instruction No. 1916 dated 11.5.94 as per which jewellery up to the weight of 500 grams and 100 grams are treated as explained in the case of a married women and a male member. The Ld. Counsel accordingly prayed that no addition whatsoever should have been made for the jewellery as the source has been explained as well as looking to the living standard of the assessee some portion of the jewellery should have been accepted by the Assessing Officer.

13. On the other hand Ld. Departmental representative supported the orders of lower authority.

14. We have heard the rival contentions and perused the records placed before us. The issue raised in Ground No. 2 and 3 related to addition of Rs. 22,65,625/- confirmed by the Ld.A.O on account of ornament, jewellery and silver found during the course of search. Before adjudicating the facts of the case we will first like to mention about the CBDT instruction No. 1916 dated 11.5.1994 wherein the Central Board of Direct Taxes issued certain guidelines in the matter of seizure of jewellery held by the people which reads as follows;

“Instances of seizure of jewellery of small quantity in the case 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 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 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.”

15. From the perusal of the above mentioned CBDT instructions which in our view provides a guideline to the search conducting team that no seizure should be made of the jewellery and ornaments found during the course of search proceedings u/s 132 of the Act, if the same have been duly declared in the wealth tax returns filed by the tax payer or where such ornaments are within the prescribed limits of 500, 250 or 100 grams as stated in the said

16. Now turning towards the facts of the present appeal we find that out of total seized jewellery of Rs. 22,65,625/- (being the value of seized jewellery as on the date of search), we find that the assessee has been successful enough to explain the jewellery worth Rs. 17,59,500/- on account of following;

(i) Diamond jewellery belonging to assessee’s wife purchased in 1993 for Rs. 2,16,000/- (duly shown in the balance sheet) which values at Rs. 10,77,000/- as on date of search.

(ii) secondly the Gold jewellery weighing around 350 grams which the assessee received as per will of her grand mother in 1993 which is also shown in the balance sheet at a cost of Rs. 1,60,930/-.

17. As regards the remaining unexplained amount of jewellery worth Rs. 5,06,000/- the Ld. Counsel has given general submission that they belongs to the wife of the assessee which is a part of streedhan. We find that CBDT instruction No. 1916 provides relief to the assessee if he is wealth tax assessee and has declared the gold jewellery ornaments in the wealth tax report and in other cases the limit of gold ornaments weighing 500 grams to the per married lady, 250 grams for unmarried lady and 100 grams per male member is provided. The instructions are just guidelines and the search party are at the discretion to decide it from case to case.

18. We have already accepted that the jewellery worth Rs. 17,59,500/- was purchased in the earlier years as well as some part received by “WILL”. However, as regards the remaining gold jewellery, silver items and diamond jewellery valuing Rs. 5,06,000/- there is no specific reply given by the assessee. We therefore, looking to the fact that assessee was living with his mother and wife and also in view of CBDT Instruction No. 1916 dated 11.5.94 discussed above sustain a total addition of Rs. 2,50,000/- for unexplained jewellery. Accordingly the appeal of the assessee is partly allowed.

19. In the result, the appeal of the assessee is partly allowed.

The order pronounced in the open Court on 19.01.2018.

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