SMT. MALLESWARI BANDI,BENGALURU vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1(2), BENGALURU

The assessee an individual. She is the wife of Shri. B. Adinarayana Reddy. There was a search and seizure operation carried out under section 132(1) of the Income Tax Act, 1961 (hereinafter called ‘the Act’), in the case of assessee’s husband on 17.08.2017. In the course of search, gold jewellery and diamond jewellery were found from the master bedroom located at the first floor of the premises of the assessee’s husband. Statement under section 132(4) of the Act was recorded by the AO with reference to gold and diamond jewellery found at the time of search. In answer to question No.39 it was accepted by the assessee that the quantum of gold jewellery found was 1358.06 gms. Gross Wt. and 1183.18 gms. net Wt. Quantum of diamond jewellery found was 32.47 cts. In the answer to question No.39, the assessee also submitted that the gold and diamond jewellery belonged to the assessee and some of the jewellery was received by the assessee during her marriage. The remaining was purchased by the assessee and her husband over the period of several years. No wealth tax returns were admittedly filed by the assessee. In respect of purchase of gold and diamond jewellery, the assessee filed some bills. In question No.41 recorded at the time of search, the search team pointed out that only gold jewellery of worth Rs.10.94 lakhs and Rs.67,834/- is mentioned in the balance sheet of the assessee and her husband respectively. The search team also pointed out that the value of gold jewellery found was Rs.28,63,136/- and the value of diamond jewellery found was 17,04,675/-. The search team wanted explanation from the assessee’s husband on this difference. In answer, the assessee submitted as follows: “Ans. Sir, I purchased the diamond jewellery on 03.08.2009 for a total amount of Rs.11,88,206/- and have bills for the same and the same is shown in the balance sheet of my wife. However, the gold jewellery has not been brought to the balance sheet and hence, the same may be considered as purchased out of my unaccounted sources. Though, some of the jewellery were purchased during the marriage, since I couldn't produce the bills and I don't want to further litigate the matter with the department, 1 hereby offer the above amount of Rs. 28,63,136/- as my undisclosed income for the current year.”

The bills for purchase of gold and diamond jewellery were furnished by the assessee in the course of search. Copies of those bills are at page Nos.35 to 37 of the assessee’s Paper Book. Purchase of jewellery (gold and diamond) as on 03.08.2009 and the value of jewellery as on 03.08.2009 was Rs.11,88,206/-.

In the course of assessment proceedings, the AO noticed that as declared by the assessee’s husband in reply to question No.41 of the statement recorded at the time of search of offering a sum of Rs.28,63,136/- as undisclosed income on account of investment in jewellery, there was no declaration in the return of income filed in response to the notice issued under section 153C of the Act.

The assessee submitted the reasons why such a declaration was not made in the return of income by pointing out that as per your valuation report, the jewellery of 1183.126 grams of gold and 32.47 carats of precious stones is estimated as Rs. 45,67,811 as per prevalent rates as on 17.08.2017, which includes gold and diamonds purchased from VASUNDARA EXOTIC JEWELLERS on 03.08.2009 of the quantity of 169.656 grams of gold jewellery and 32.47 carats of diamond/precious stones. The assessee submitted that as per Instruction no. 1916 dated 11.05.1994 issued by the CBDT regarding guidelines for seizure of jewellery and ornaments in course of search 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 even though it does not have documentary evidence. It was submitted that though the aforesaid circular of CBDT is in the context of seizure of jewellery at the time of search, the same principle would apply to assessments also because as custom/practice people possess Gold by way of gift or succession. Following the instruction above, the Assessee claimed that the family of the Assessee comprising of the Assessee her mother and husband and children are allowed to hold the gold and other precious ornaments upto the following limit.

Particulars Amount of jewellery permitted as per Board's Circular (in grams) Mrs. MalleswariBandi (self) 500 Mrs. (Dependent Mother) 500 Mr. AdinarayanaReddy 100 Bandi (Husband) Mr. BharathBandi (son) 100 Mr. RishithBandi (son) 100 Total 1300 The assessee submitted that all the above 5 members were living in one and the same house. Since the jewellery held (1183.126 gms) is well within the limit of 1300 gms of jewellery permitted as per Board Circular, the assessee submitted that she has satisfactorily explained the source of gold jewellery. In support of the aforesaid contention, the assessee relied on the decision of Tribunal in the case of Smt.Ritu Bajaj Vs Dy. C.I.T (Central Circle-Delhi) ITAT "SMC" Bench, New Delhi. Besides the above, the assessee also relied on the fact that part of the jewellery was acquired in the year 2009 and some of the jewellery were obtained at the time of marriage.

The AO however held that the assessee in her reply to the notice under section 142(1) of Act, had pleaded that 773.1 grams of gold jewellery was received as gifts during marriage ceremony on 02.11.1996 and 240.37 grams of jewellery was received as gifts from parents. The assessee could not produce any documents supporting her claim. Even in the course of assessment proceedings, the assessee could not offer any explanation about the source of acquisition of the said jewellery or documents to show that the same was received as gift by her. In so far as CBDT Instruction No. 1916 dated 11.05.1994 is concerned, the AO held that the said instruction was issued to fix a reasonable limit of holding of jewellery by a family and seizure of the jewellery above that limit during search proceedings. But if the assessee is not able to explain the source of acquisition of jewellery, then the investment becomes unexplained. According to the AO, total jewellery of 1358.06 grams of gold and 32.47 carats of diamond jewellery was found. The assessee has shown jewellery of Rs.10,94,952/- in her balance sheet. Thus, the balance jewellery worth Rs.34,72,859/- is unexplained. The AO therefore held that the jewellery of Rs.28,63,136/- as admitted by assessee during search proceedings has to be treated as her unexplained investment u/s 69 of Act and Tax on the amount of Rs.28,63,136/- has to be charged @60% u/s 115BBE of the Act.

Before the first appellate authority, the assessee submitted that no statement was recorded under Section 132(4) of the Act from her in respect of the alleged jewellery found which in fact partly belonged to her husband and other family members. It was pointed out that it is only her husband whose statement was recorded u/s.132(4) of the Act and that she has not made any admission during the search. The assessee reiterated submissions made during assessment proceedings. The assessee also submitted that the valuation of jewellery could not have been done at the gold rates prevailing at the time of search as the jewellery was acquired over several past years. The gist of the submissions of the assessee is as follows:  The search was conducted in case of her spouse and the seizure was in his case. She had neither given any statement during search nor admitted any undisclosed income.  The jewellery belonged to dependent mother, her spouse, her two sons and herself.  She had not filed any wealth tax returns as the value was less than the threshold limit.

The CIT(A), however, confirmed the order of the AO. According to the CIT(A), the plea of the assessee regarding credit for gold jewellery at 500 gms. in respect of female members of the family and 100 gms. in respect of male members of the family based on instruction No.1916 of the CBDT dated 11.05.1994 cannot be accepted because at the time of search in the statement under section 132(4) of the Act, the husband of the assessee admitted that jewellery belonged to the assessee and him. The CIT(A) also held that the Circular of the CBDT is only with regard to seizure and cannot be extended to the explanation of the source of jewellery. The CIT(A) also held that the assessee failed to bring on evidence to show the jewellery was acquired by her at the time of marriage. The CIT(A) accordingly confirmed the order of the AO.

Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. I have heard the rival submissions. Learned Counsel for the assessee reiterated stand of the assessee as put forth before the Revenue Authorities. Learned DR relied on the order of the CIT(A).

The impugned addition is made under section 69 of the Act. The burden under section 69 of the Act that lies on the assessee is to give satisfactory explanation with regard to the investment made in jewellery. What is satisfactory explanation will depend on the facts and circumstances of each case. The standard of proof required cannot be equal to proof on preponderance of probability as is required in judicial proceedings. In this background it is seen that the search was conducted in the case of the assessee’s husband. In the statement recorded under section 132(4) of the Act, the husband of the assessee admitted that the jewellery belonged to him and the assessee and some of the jewellery was received by the assessee during her marriage and the rest was purchased over a period of several years. The admission of the assessee’s husband in a statement under section 132(4) of declaring undisclosed income cannot bind the assessee. Therefore, the case has to be decided on the basis that there was no admission of undisclosed income whatsoever. The evidence with regard to bills in respect of gold and diamond jewellery as on 03.08.2009 of a value of Rs.11,88,206/- was also filed by the assessee. It is also seen that the assessee has given details of the income declared by her over a period of 16 years and the income declared is to the tune of Rs.4.78 Crores. Considering the status of the family and other surrounding circumstances including the statement of evidence given by the assessee, the possession of jewellery worth Rs.28.54 lakhs have to be accepted. Admittedly, the jewellery was purchased in the year 2009 and this evidence has been completely ignored by the Revenue authorities. When I look at the assessee and her family member’s credit worthiness, I find that as evidenced by the return of incomes filed by them the position is as follows: Statement showing the calculation of Rate per gram adopted by the valuer