DCIT, CENTRAL CIRCLE-2(1), BANGALORE vs. CHICKKAHANUMAPPA HARISHBABU, CHIKKABALLAPUR

This appeal has been filed by the Deputy Commissioner of Income Tax, Central Circle-2(1), Bengaluru, for Assessment Year 2020-21 against the appellate order dated 23 August 2025 passed by the Commissioner of Income Tax (Appeals)-15, Bengaluru [the learned CIT(A)]. By the said order, the learned CIT(A) partly allowed the assessee’s appeal against the assessment order dated 29 September 2021 passed under section 143(3) of the Income-tax Act, 1961 by the learned Assessing Officer. Aggrieved by that order, the learned Assessing Officer is in appeal before us.

The ld. AO has raised following grounds of appeal: -

Briefly, the assessee is an individual earning income from house property, other sources, and agriculture. He is also alleged to be engaged in a cash-based money-lending business, charging high rates of interest and investing the cash so generated in immovable properties. The assessee filed his return of income for Assessment Year 2020-21 on 1 December 2020, declaring total income of ₹11,68,380. Thereafter, a search under section 132 of the Income-tax Act was conducted on 9 January 2020. Based on the search, the case was selected for scrutiny, and notice under section 143(2) was issued on 11 February 2020. During the search, jewellery weighing 6,120.70 grams and valued at ₹2,28,09,093, as per the approved valuer’s report, was found and inventorised. When asked to explain its source, the assessee stated that part of the jewellery was inherited from his younger sister, parents, and grandmother; part was received at the time of his marriage; and some was gifted to his daughter and two sons on various occasions by relatives. He further stated that some jewellery had been disclosed by his wife and mother in their income-tax returns for Assessment Year 2019-20. On verification, however, the Assessing Officer found that neither the assessee nor any family member had disclosed such jewellery in their income-tax returns or filed wealth-tax returns. When confronted in the statement recorded under section 132(4), the assessee confirmed that jewellery of net weight 6,120.70 grams was found from his residence during the search on 9 January 2020. He stated that his family consisted of himself, his mother, grandmother, wife, and three children, and that the jewellery partly belonged to his wife, mother, and grandmother. He explained that some jewellery was more than 50 years old and had been made during his grandmother’s younger days, while some was gifted to his wife by her father and other relatives at the time of marriage. He also claimed that some jewellery had been declared in income-tax returns and requested that this explanation, along with the age of his mother and grandmother, be considered before any action was taken. The Assessing Officer held that the assessee had not fully explained the source of the jewellery. Applying the CBDT guidelines on seizure of jewellery, jewellery weighing 3,211.24 grams, including gold and diamond jewellery, was seized. During assessment proceedings, the assessee was again given an opportunity to explain the source. By letter dated 14 September 2021, he submitted that the seized jewellery was decades old and that some items belonged to his great-grandmother. He also stated that he belonged to the Gowda community and to a large agricultural family, and that the jewellery was acquired only from agricultural income, with no other source. In support, he filed photographs showing himself and his family members wearing the jewellery. The Assessing Officer considered the explanation but held that the photographs merely showed possession of some jewellery and did not establish the source or manner of acquisition. Since the assessee failed to satisfactorily explain the source of the seized jewellery, the Assessing Officer made an addition of ₹1,02,76,362, being the value of 3,211.24 grams of jewellery seized during the search, as unexplained money under section 69A of the Act. Accordingly, in the assessment order dated 29 September 2021 passed under section 143(3), the total income was assessed at ₹1,14,44,739, as against the returned income of ₹11,68,380.

Aggrieved by the assessment order, the assessee appealed before the learned CIT(A). In paragraph 5.2 of the appellate order, the learned CIT(A) reproduced the assessee’s submissions and, in paragraph 5.4, adjudicated the issue. In paragraph 5.5, he recorded the assessee’s contention that, by letter dated 20 September 2021 filed before the Assessing Officer, the jewellery was explained as having been acquired from two sources, namely rental income and agricultural income. The assessee also stated that evidence showing ownership of the jewellery for over 50 years had been furnished before the Assessing Officer. During the appellate proceedings, the assessee submitted the income- tax returns of himself, his wife, his mother, and his late father. From these returns, the learned CIT(A) noted that the family members had disclosed aggregate income of ₹3,34,92,787, mainly from agricultural and rental income. After tabulating the income of the respective family members, he accepted the assessee’s contention that the disclosed family income was substantially higher than the value of the seized jewellery and was sufficient to explain its source. The learned CIT(A) considered the assessee’s income for Assessment Years 2011-12 to 2020-21. He also referred to the CBDT circular dated 11 May 1994, which permits allowance of 500 grams each for the wife and mother, 250 grams for the daughter, and 100 grams each for the assessee and his two sons, aggregating to 1,550 grams. According to him, this allowance had to be considered along with the income disclosed by the assessee and his family members in their returns. The learned CIT(A) further relied on the decisions of the Hon’ble Karnataka High Court reported in 240 ITR 727, the Hon’ble Allahabad High Court reported in 41 taxmann.com 295, and the Hon’ble Gujarat High Court reported in 2 taxmann.com 997. Accordingly, in paragraph 5.6.1 of the appellate order, he deleted the addition of ₹1,02,76,362 relating to 3,211.24 grams of gold jewellery.

Aggrieved by the relief granted by the learned CIT(A), the Assessing Officer is in appeal before us.

The ld. DR, Shri N Balusamy, JCIT, submitted a written submission which is as under:-

The learned authorised representative, Ms. Pooja Maru also submitted her return submission which is as follows:-

We have carefully considered the rival contentions and perused the orders of the lower authorities. The facts show that, during the search, jewellery weighing 6,120.70 grams and valued by the approved valuer at ₹2,28,09,093 was found. Of this, only 3,211.24 grams of gold jewellery was seized, and the Assessing Officer made an addition of ₹1,02,76,362 in respect of that jewellery. Before the Assessing Officer, the assessee failed to explain its acquisition with cogent evidence, such as purchase invoices or material showing the source from which the jewellery was acquired. The assessee produced only photographs, which did not establish when the jewellery was acquired and, therefore, had no evidentiary value for explaining its source. The learned CIT(A) deleted the addition on the ground that the assessee had earned substantial income over the preceding ten years from rental and agricultural sources and that such income explained the acquisition of the jewellery.

The learned CIT(A) deleted the addition after considering whether the assessee had explained the source of gold jewellery weighing 3,211.24 grams and valued at ₹1,02,76,362. During the appellate proceedings, the assessee furnished the income-tax returns of himself, his wife, his mother, and his late father. On reviewing those returns, the learned CIT(A) observed that the assessee and his family members had declared aggregate income of ₹3,34,92,787, consisting mainly of agricultural and rental income. However, the learned CIT(A) considered only the income disclosed and did not verify the investments or other applications of that income. Without examining whether the assessee had invested those funds elsewhere, no such benefit could have been granted. Further, there is no finding by the learned CIT(A) that the assessee had not capitalised the same income in other assets. The learned CIT(A) also did not verify whether the concerned family members maintained books of account or whether the income remained available for purchase of the jewellery. In these circumstances, it is too far-fetched to aggregate the assessee’s income over ten years and conclude that the jewellery found during the search stood explained. If such an approach were accepted, acquisition of any asset could be justified merely by aggregating income over ten years, twenty years, or any other period. That is neither the intent nor the spirit of the law.

Under section 69A of the Act, where an assessee is found in any financial year to be the owner of jewellery not recorded in the books of account, and the assessee either offers no explanation regarding the nature and source of its acquisition or the explanation offered is not, in the opinion of the Assessing Officer, satisfactory, the value of such jewellery may be treated as the assessee’s deemed income for that financial year. In the present case, jewellery weighing 6,121.70 grams was found with the assessee. Therefore, the assessee was required to explain the acquisition of entire jewellery. However, in view of CBDT Instruction No. 1916 dated 11 May 1994, part of the jewellery could be treated as explained to the extent permitted by that instruction. The assessee furnished the list of family members and contended that jewellery weighing 2,050 grams stood explained. Accordingly, any jewellery more than 2,050 grams had to be explained by producing evidence of the source of income from which it was acquired. Section 69A specifically requires the assessee to establish both the nature and source of acquisition of such jewellery. The learned CIT(A), however, deleted the addition merely by aggregating the income of the assessee and his family members for ten years, even though the assessee had not explained the nature and source of acquisition of the jewellery. The assessee did not produce invoices or evidence of payment through bank accounts, nor was it claimed before either the learned CIT(A) or the Assessing Officer that the jewellery had been purchased out of the disclosed income of the assessee.

It is undisputed that jewellery weighing 6,121.70 grams was found in the assessee’s possession. Even during the search, the assessee did not state that the jewellery belonged to different persons, as later claimed in paragraph 1 of his submissions before us. Since the jewellery was found with the assessee during the search, he is treated as its owner unless he proves otherwise. We therefore find no merit in the assessee’s contention that the jewellery belonged to his wife, children, father, mother, or other relatives, so no addition could be made in the hands of assessee.

It is immaterial which family the assessee belongs to or whether his relatives reside with him. The assessee was required to explain to whom the jewellery belonged and who owned it. If he fails to offer such an explanation, the jewellery is deemed to belong to the assessee from whom it was found.

Undoubtedly, to the extent jewellery is covered by CBDT Instruction No. 1916, no addition can be made in the hands of the assessee in view of the decisions of several High Courts. However, those decisions do not lay down that jewellery found more than the prescribed quantity is also immune from taxation. The instruction only recognises customary practices and family circumstances. A mere assertion that the assessee enjoys high social and financial status or has generated substantial wealth cannot shield unexplained jewellery found in his possession from tax, particularly when he has failed to explain the nature and source of its acquisition. Photographs of the jewellery do not assist the assessee unless supported by purchase invoices and evidence of a legitimate source for acquiring the jewellery.

In the result, considering the facts on record and the absence of any documentary evidence furnished by the assessee, we reverse the order of the ld. CIT (A), and uphold the order of the learned Assessing Officer treating the jewellery weighing 3,211.24 grams, valued at ₹1,02,76,362 as per the valuation report and seized during the search, as unexplained money under section 69A of the Income-tax Act.

In the result, appeal filed by the learned assessing officer is allowed.