Commissioner of Income Tax vs Satya Narain Patni

J.K. Ranka, J.—This instant income tax appeal under s. 260A of the IT Act, 1961 (hereinafter referred to in short as ''Act of 1961'') filed by the Revenue assailing the order of the income tax Appellate Tribunal, Jaipur Bench ''A, Jaipur, dt. 15th Jan., 2010 passed in ITA No. 715/JP/2009 and cross-objection No. 150/JP/2009, relates to asst. yr. 2005-06. Though the Revenue has raised as many as 2007 questions which according to the Revenue, are substantial questions of law, but primarily, during the course of arguments, counsel for the Revenue has contended that the question No. 3 pertains to addition of Rs. 2,88,176 made by the AO on account of unexplained jewellery found during the search, and whether there was any proper explanation for its deletion deserves consideration of this Court, and according to him, rest of the substantial questions of law, needs no consideration of this Court. Brief facts which have been culled out on perusal of the impugned orders, are that a search and seizure operation was carried out at the business and residential premises of the assessee on 30th June, 2004 where certain incriminating books of accounts and documents were seized. During the course of search operation, cash amounting to Rs. 1,50,600 was found besides Gold jewellery weighing 2,202.464 gms. valued at Rs. 10,53,520 and silver items valued at Rs. 93,678. Looking to the status of the assessee and the statement given during the course of search operation by various family members and considering the fact that there are four married ladies in the house including the wife of the assessee, no jewellery was seized by the authorised officer, however, the jewellery to the extent of 1600 gm was treated as reasonable by the AO which had been received by them at the time of their marriage. The balance jewellery weighing 602.464 gm was treated as unexplained in 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 and accordingly added back to his income. The assessment order came to be passed on 28th Dec. 2006 where this addition was made along with other additions based on the incriminating documents found during the course of search.

Being dissatisfied with the observations and addition, the respondent-assessee preferred an appeal before the CIT(A) Central, Jaipur, who vide order dt. 19th June, 2009, substantially deleted the additions made by the AO including the addition of the jewellery made by the AO to the tune of Rs. 2,88,176.

Being aggrieved of the order dt. 19th June, 2009, whereby certain deletions were made, the Department preferred an appeal before the Tribunal and the assessee also filed cross-objections. The learned Tribunal also on appreciation of facts and evidence available on record, confirmed the order of CIT(A). Hence, this appeal.

Learned counsel for the Revenue has contended that the AO had given due credit of jewellery to the various family members. He has also contended that out of jewellery of Rs. 10,53,520, only jewellery of Rs. 2,88,176 was found unexplained and almost 75 per cent of the jewellery found was treated as explained by the AO himself and only where the respondent-assessee or family members were not in position to explain the balance jewellery, the addition was made. The respondent-assessee or/and other family members were not in position to adequately explain the source of receipt of aforesaid jewellery and it was duty of the assessee to lead proper evidence, but since no evidence was led, therefore, according to the status of the respondent, AO rightly gave credit to the respondent of 1,600 gms of jewellery, and being not satisfied with the balance, made addition which was correct and justified. He has further contended that though there is circular of the Board which has been referred to by the Tribunal dt. 11th May, 1994, but it simply lays down that in case a person is 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 it does not mean that AO is debarred from questioning even the items found. The circular emphasized only that jewellery will not be seized, however, the AO was duty-bound to seek explanation of owning and possessing of such jewellery. He has also contended that when majority of the jewellery in accordance with the status of the respondent-assessee had been accepted, then only to the extent the assessee was unable to prove by acceptable evidence of the balance, the said addition was made and which is proper and contended that the Tribunal is unjustified and that substantial question of law arise for consideration.

We have considered the arguments raised on behalf of the counsel for the Revenue, and have gone through the impugned orders so also the circular of CBDT. It is necessary to quote the Instruction No. 1916, dt. 11th May, 1994 issued by the CBDT, which reads ad infra:

"Instances of seizure of jewellery of small quantity in course of operations under s. 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 WT 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 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 IT/CIT authorizing 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.

Yours faithfully,

Sd/-

Siddhartha Mukherjee

Secretary (CBDT)

(F. No. 286/63/93-IT (Inv. II)"

We have gone through the order of CIT(A) wherein it has been observed as under:

"In search total gold jewellery of 2,202.464 gms (net weight) was found. The jewellery was found from the bedroom of various persons, locker and on person which was identified as belonging to specific persons.

The same is tabulated below:

In the statements recorded on 25th Aug., 2004 during search under s. 132(4) the assessee and various family members stated as below:

Satyendra Patni: In reply to question No. 5 he stated that he possesses one gold ring and 2 gold chains and his wife possesses 30 Tola gold jewellery. He further stated that all his 3 daughter-in-law also possess 30 Tola gold jewelry each which they received from their parental side at the time of marriage and subsequently at the time of birth of children.

Chandraprakash Patni (eldest son): In reply to question No. 12 regarding jewelry lying with him at that time, he stated that around 10 Tola of jewelry is lying with him belonging to his wife.

Pushpendra Patni: In reply to question No. 16 he stated that he has one gold chain, bracelet and two rings. In reply to question No. 17 he stated that he is not aware of the jewelry owned by his wife but the jewelry she possesses has been received at the time of marriage in 2,000 and he has not purchased any jewelry thereafter.

Smt. Aparna Jain w/o. Chandraprakash Patni: In reply to question No. 6 she stated that she possesses one chain, four Churi, two bangles, two pair tops, ladies bracelet , gents bracelet , 3-4 rings and Mangalsutra. She further stated that two sets received from her parents and one set received from in-laws are lying with her mother-in-law, Smt. Anila Patni."

Thus, from the perusal of above chart as well as statements, it is abundantly clear that jewellery which has been found in possession of the family members is in accordance with customs and practice prevalent in the community and in accordance with status of the family.

On perusal of the order of CIT(A) as also the Tribunal, we notice that the AO had not given any basis for restricting the claim of jewellery at 1,600 gms as reasonable while the AO has simply mentioned about there being four ladies, but ignored that in addition to four ladies, there were four male members so also three children and if the male members so also the children are considered, then even factually the claim of respondent-assessee appears to be reasonable in the light of the aforesaid instruction dt. 11th May, 1994. If the circular is strictly followed, then to the extent of 2,700 gms., no jewellery could be seized. (500 x 4 ladies + 100 x 7 male + children = 2,700 gms.). In the aforesaid facts, we fail to understand the basis of 1,600 gms held reasonable by the AO.

Therefore, in our view, the Tribunal has rightly considered the said issue and we are also in conformity with the order passed by the Tribunal. We are also of the view that the CBDT keeping in view the status of the family, customs and practice of the community, came down with the said circular and one has to go with the weight and not with the value as the value may fluctuate over the years. The Tribunal has also appreciated the fact on record that the marriages of three sons were performed in the years 1996. 2000 and 2003 and all the marriages including the assessee and three sons were performed prior to 2003. It is also on record that the statements of various family members were recorded and none has stated that these are not personal wearing jewellery and same were received by the respective ladies/daughter-in-law on/or at the time of their marriages either from the parental side or in-laws side and even subsequently at the time of birth of their children.

On perusal of the circular of the Board, quoted supra, it is clear that in the case of wealth-tax assessee, whatever gold jewellery and ornaments have been found and declared in the WT return, need not be seized. However, sub-cl. (ii) prescribes that in 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. Sub-cl. (iii) also prescribes that 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.

It is true that the circular of the CBDT, referred to supra dt. 11th May, 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 possession 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 AOs, 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.

Admittedly, looking to the status of the family and the jewellery found in possession of four ladies, was held to be reasonable and therefore, the authorized officers, in the first instance, did not seize the said jewellery as the same being within the tolerable limit or the limits prescribed by the Board and thus, in our view, subsequent addition is also not justifiable on the part of the AO and rightly deleted by both the two appellate authorities namely'' CIT(A) as well as the Tribunal.

It can also be observed here that prior to 1992, when the exemption limit under the WT Act was about Rs. 1,00,000 or Rs. 1,50,000, then in most of the cases, returns were filed under the WT Act because even in case of possession of 500 gms per lady and the other assets namely; capital, investments in firms/shares, landed property etc. being taxable return of wealth were invariably filed by the assessees. However, by the Finance Act, 1992, w.e.f. 1st April, 1993, drastic change was introduced under the WT Act where only some assets under s. 2(ea) came within the purview of the definition of an "asset" under the wealth-tax and by and large, the other assets namely; liquid, capital investments in firms/shares, one house property, commercial assets were exempt and even the limit of other assets was raised to 15 lacs (for the asst. yr. 1993-94 to 2009-10) and thereafter, by and large, even the assessees, who were furnishing returns prior to 1st April, 1992, in view of the drastic amendment made under the WT Act, chose not to file WT return as there was no liability for furnishing WT returns. That does not mean that whatever assets were there in their possession, not disclosed under the WT Act, remained undisclosed. May be, later on, on account of increase in the gold/silver prices, value of gems/stones, value of jewellery may have exceeded but that does not mean that if a person has not filed WT return, then jewellery even to the said extent of 500 gms prescribed by the aforesaid circular, became undisclosed. Admittedly, it is not the case of the Revenue that the jewellery, so found, which has been prescribed hereinabove, was not admitted by the family members at the time of search. All the ladies in the family admitted that the jewellery found were all their own and some of the jewellery was lying in custody and control of their mother-in-law and in Indian conditions, it happens that the daughter-in-law keeps her jewellery with her mother-in-law or/and head of the family and takes the same whenever required for some occasion in the family. Even otherwise, the jewellery is personal wearing in nature and the Revenue has not placed any material on record to show that the items, which were found, were not personal wearing of the ladies.

Considering the above facts and circumstances, in our view, the Tribunal has correctly analyzed the circular of the Board and we do not find any infirmity or perversity in the order of the Tribunal so as to call for any interference of this Court. In our view, no substantial question of law arise out of the order passed by the Tribunal. Accordingly, the appeal, being devoid of any merit, is hereby dismissed in limine. No order as to costs.