No provision to tax difference between value of jewellery declared and jewellery found

There is no provision in the Income Tax Act to tax the difference between value of jewellery declared and jewellery found in search as deemed sale

ABCAUS Case Law Citation:
ABCAUS 3744 (2023) (05) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the addition made on account of capital gain on alleged sale of jewellery and addition made under section 69A of the Income Tax Act, 1961 (the Act) on account of alleged mismatch in the description of the jewellery.

A search & seizure operation u/s 132 of the Act was conducted in the case of a Business Group by the Investigation Wing.

The assessee had declared income under the head ‘Income from salary’ and also income from other sources as interest from savings bank account.

During the search, jewellery was found. The assessee and his wife had already declared jewellery in their Wealth Tax Returns. However, jewellery valuing about 1/3 were seized owing to mismatch of the description of the jewellery.  

The Assessing Officer (AO) noted that the value of the jewellery declared in WTR was much higher than the value of jewellery found during the search. Due to non-availability of the remaining jewellery, the AO calculated Long Term Capital Gains on the presumption that the jewellery “undetected” during the search was sold.

The Tribunal proceeded to decide the question as to whether the AO can resort to determination of notional LTCG or not?

The Tribunal opined that the shortage of jewellery could have been questioned at the time of search and any evidence with regard to the sale of jewellery should be collected during the search or post search enquiry. However, nothing of such investigation was made by the revenue authorities.

The Tribunal observed that there was absolutely no material to prove that there has been such sale which led to Long Term Capital Gains.

The Tribunal stated that there is no provision in the Income Tax Act to deem the difference between value of the jewellery declared and the value of the jewellery found in the search, in case the jewellery falls short of the amount/quantity declared.

Accordingly, the ITAT directed that the addition made on account of Long Term Capital Gains on the purported, notional, fictitious sale of jewellery be deleted.

With respect to the addition made u/s 69A for mismatched jewellery, the submission of the assessee was that the loose diamonds which were part of the Wealth Tax Return were studded in the jewellery subsequently and that was the reason that the description of the jewellery was different.

The Tribunal opined that these three issues need to be examined holistically. Keeping in view the entire disclosed jewellery as per the WTR and as found in the premises, the ITAT held that no addition can be made on this account.

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