Jewellery belonging to family members found in search can not be taxed in assessee’s hand

Assessee can not be taxed for jewellery belonging to family members erroneously or under compulsion offered to tax during search

ABCAUS Case Law Citation
ABCAUS 3414 (2020) (10) ITAT

Important case law relied upon by the parties:
CIT v Rakesh Ramani[2018] 94 taxmann.com 461 (Bom)(HC)/[2018]
Balmukund Acharya v DCIT [2009] 310 ITR 310 (Bom)(HC)
Nirmala L. Mehta vs. A. Balasubramaniam, CIT [2004] 269 ITR 1 (Bom)(HC)
CIT vs. Mitesh Impex [2014]  225 Taxman 168 (Guj) (MAG.) (HC)
CIT v Pruthvi Brokers & Shareholders [2012] 349 ITR 336 (Bom)(HC)
CIT v. Bakelite Hylam Ltd. [1999] 237 ITR  392(AP)(HC)
Goetz India Ltd. Vs. CIT (284 ITR 323)

In the instant case, the assessee had challenged the order passed by the CIT(A) in treating jewelry as income of the assessee despite said jewelry belonged to assessee but belonged to the family members.

The assessee was an individual and during the course of search and sizure u/s 132 of the Income Tax Act, 1961 (the Act), jewellery was found from four bank lockers belonging to the family members.

The assessee explained the jewellery as belonging to various lady members of the family but assessee offered it as his income and has also given a pay order for tax. None of the jewellery was seized.

Subsequently, the assessee filed Return of income disclosing the equivalent value of the jewellery found as income from other  sources. 

The Assessing Officer (AO) accepted the income returned but initiated penalty proceedings u/s 271AAB as the same was offered to tax consequent to search proceedings.

The CIT(A) dismissed the appeal of the assessee on the ground that  same was offered in original Return of income and said income was not  withdrawn by filing Revised return of Income.

Before the Tribunal, the assessee contended that during the course of search itself, he had duly explained that the jewellery was belonging to the family members. However, solely to buy peace of mind that the assessee was  forced  to  pay  tax  equal  to  100%  of  the  value  of  the alleged undisclosed jewellery found.

It was submitted that the jewellery found during the course of search was belonging to the family members and it was well within the limit jewellery holding prescribed by the CBDT.

The assessee further referred to the CBDT Circular No. 14(XL-35) of 1953 dated 11.4.1955 which states that officers of the Department must not take advantage of the ignorance of the assessee as to his rights.

The Tribunal noted that the jewellery  was found in the bank lockers belong to the family members. In course of assessment proceedings  the assessee had duly given details about the jewellery found in the  search belonging to other family members.

The Tribunal opined that the very fact that the assessee was made to pay tax equivalent to 100% value of undisclosed jewellery clearly showed that the Revenue authorities had taken advantage of the assessee not being aware of his rights properly.

The Tribunal stated that by no stretch of imagination if tax is at all due the same was equivalent to 100% value of the jewellery found. Furthermore, the Revenue authorities could not have shown ignorance of the permissible limit of jewellery holdings as prescribed by the CBDT Instruction No. 1994

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The Tribunal said that when assessee had duly brought on record affidavits of the family members owning jewellery, just because the claim was made otherwise then by revised return the said claim did not seize to be a claim to be adjudicated as long as the claim is made.

The Tribunal pointed out that even Hon’ble Supreme Court decision in Goetz (India) Ltd. Had held that the said decision would not debar Tribunal from adjudicating a claim, that was raised otherwise then by revised return of income.

The Tribunal opined that assessee’s affidavits belonging to various  family  members,  which  were  brought  on  record  ought  to  have  been considered in the light of the Hon’ble High Court decision which provides that there is no requirement in law that evidence in support of the case must be produced only at the time when  seizure  has  been  made  and  not  during the  course  of  assessment proceedings.

The Tribunal held that the jewellery found was within the limit fixed by CBDT. The authorities below erred in rejecting the assessee’s claim  on the touchstone of  the Hon’ble  Supreme  Court  and Hon’ble  High  Court  decisions. 

The Tribunal set aside the orders of the authorities below and delete the addition and allowed assessee’s appeal.

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