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Facts
Gold ornaments were seized by Bengaluru Police from employees of S.S. Jewellery during transit. The assessee claimed ownership, stating it was business stock moved between its Mumbai head office and Bengaluru branch. The GST department had previously accepted these movements as not constituting a taxable supply.
Held
The Tribunal held that the assessee provided satisfactory explanations and documentary evidence for the nature and source of the jewellery, which was duly recorded in the books of accounts and accepted by the GST Department. Consequently, the addition made under Section 69A of the Income Tax Act was deleted.
Key Issues
Whether the seized jewellery constituted unexplained assets or legitimate business stock, and whether the provisions of Section 69A or 115BBE of the Income Tax Act were applicable.
Sections Cited
69A, 115BBE, 69A, 115BBE
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI ANIKESH BANERJEE, HON’BLE
Assessee by : Shri Mani Jain, A/R Revenue by : Shri Arun Kanti Datta, CIT, D/R सुनवाई की तारीख/Date of Hearing : 17/07/2025 घोषणा की तारीख /Date of Pronouncement: 23/07/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: & are cross–appeals by the assessee and the revenue preferred against the order of the ld. CIT(A) – 51, Mumbai [hereinafter ‘the ld. CIT(A)’] dated 15/07/2024 pertaining to AY 2021-22. I.T.A. No. 4651/Mum/2024 is the appeal by the revenue preferred in the case of the partner of the firm for AY 2021-22 against the order of the ld. CIT(A) dated 15/07/2024 pertaining to AY 2021-22.
Since the facts are intertwined, therefore, all these appeals were heard together and are disposed of by this common order for the sake of convenience and brevity.
The grievance of the assessee in I.T.A. No. 4542/Mum/2024, reads as under:- “1. On the facts and circumstance of the case and in law, Id. CIT(A) erred in confirming the action of Id.AO in making the addition of Rs. 2,68,91,329/- on account of jewellery seized by treating the same as undisclosed business income, for the reasons mentioned in the impugned order or otherwise.
2. On the facts and circumstance of the case and in law, Id. CIT(A) erred in confirming the action of ld.AO in making addition of Rs. 1,91,140/-on account of cessation of liability, for the reasons mentioned in the impugned order or otherwise.”
Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidence I.T.A. No. 4542/Mum/2 I.T.A. No. 4651/Mum/2024 3 brought on record were duly considered in the light of Rule 18(6) of the ITAT Rules, 1963.
Briefly stated the facts of the case are that the assessee is engaged in the business of trading and manufacturing of gold ornaments having head office at Mumbai and one branch at Bengaluru. In the ordinary course of its business, the gold jewellery from Mumbai office is normally transported through secure logistics firm M/s. BVC Logistics and the same is insured against any loss. In case of any urgent requirements, the gold jewellery is also transported through special messengers. It so happened that one day employees of Bengaluru Branch, Shri Dalpat Singh Rathore and Shri Vikas Kumar Bharaktiya who were carrying the gold ornaments for display and approval from customers, were intercepted by the Bengaluru Police, with gold ornaments weighing 6055.23 gms on 21/11/2020 and the gold ornaments were seized. 5.1. A petition was moved before the Magistrate Court at Bengaluru and it was strongly contended that the jewellery seized by the Police belongs to M/s. S.S. Jewellery (the assessee). The claim of the assessee was rejected by the Magistrate who directed the Income-tax Department to take possession of the jewellery seized by the Police Department. Subsequently, the jewellery was released against bank guarantee filed by the assessee.
I.T.A. No. 4542/Mum/2 4
All that has to be considered now is whether the said jewellery for which the assessee claimed ownership, is its business stock. Accordingly, a questionnaire was issued and served upon the assessee to explain that the jewellery is in fact in the stock of the assessee. The assessee filed the stock register of the firm M/s. S S Jewellers, Bengaluru Branch, and claimed that there were specific entries in the stock register about the stock receipts. The claim of the assessee was dismissed on the ground that inter-state transfer would have been captured in the respective GST return filed by the firm. 6.1. At this stage it would be pertinent to refer to the order u/s 74(1) of the KGST/CGST/IGST Acts, 2017 r.w.r. 142 (1)(A) of the KGST/CGST/IGST Rules, 2017. The most relevant part of the order reads as under:- “Under the circumstance and material available on record with the report details and also the documents and rulings issued by the Hon'ble High court of Karnataka noticed from the supportive documents for their claim, the transactions are mere movement of goods for display and back with required documents for the said claim as the same is not a sale/supply under GST act 2017 is found acceptable which were also before the Enforcement authority based to which the report has been finalized. For the proceedings the dealer had also complied with provisions of the GST Act 2017. The dealer had also responded to the adjudication proceedings with the reply contending the transactions of their activity are not covered under taxable supply as the movement is for involving delivery challan for supply on approval which on display sent back with documents to the head office SS Jewellers Mumbai, they had maintained details for their activity with each of the consignment. and hence the proceedings of the case for adjudication is dropped for 2019-20 accepting the returns filed.” 6.1.1. From the above it is amply clear that the transactions were mere movement of goods for display and back between the head office at I.T.A. No. 4651/Mum/2024 5 Mumbai and branch at Bangalore. This can be substantiated from the following chart being quantitative statement of source of gold ornaments seized by City Market Police Station, Bangalore on 20/11/2020:-
I.T.A. No. 4542/Mum/2 6
This is further supported by the stock movement of the firm between 01/10/2020 to 30/11/2020 which is as under:-
I.T.A. No. 4542/Mum/2 7
Interestingly while dismissing the appeal of the assessee, the ld. CIT(A) was convinced that the unexplained jewellery was indeed the business stock of the assessee firm and has to be treated as excess stock of business and, therefore, provisions of Section 115BBE of the Act would not apply and against this finding the revenue is in appeal.
Be that as it may, the aforementioned factual discussion goes to show that the impugned gold ornaments have been properly explained and have been accepted by the GST Department that they were nothing but movement of stock from head office Mumbai to branch Bangalore and, therefore, provisions of section 69A of the Act do not apply, which read as under:- “[Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or I.T.A. No. 4651/Mum/2024 8 valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.]” 10. In the considered opinion of the Bench, the assessee has offered satisfactory explanation about the nature and source of acquisition of jewellery duly recorded in the books of accounts supported by documentary evidence mentioned elsewhere and accepted by the GST Department also mentioned elsewhere. Therefore, we do not find any merit in the impugned addition u/s 69A of the Act and the AO is directed to delete the same. 11. Insofar as Ground No. 2 is concerned, the AO has made the addition on the presumption that the liability shown in the name of Shri Samresh Guchhait has ceased to exist. 12. We find that the said liability is in respect of labour charges incurred by the assessee amounting to Rs.1,93,071/- towards manufacturing of gold ornaments on which tax has been deducted at source at Rs.1,931/- and Rs.1,91,140/- was outstanding for payment as and 31/03/2020. Since the gold ornaments were not of standard quality and there were some manufacturing defects, the amount was not paid to Shri Samresh Guchhait and the said amount will be paid after resolving the manufacturing defects. Therefore, the liability was outstanding. 13. In the considered opinion of the Bench, merely because liability was outstanding as on 31/03/2020 would not mean that it has ceased I.T.A. No. 4542/Mum/2 9 to exist. We do not find any merit in the impugned addition and the same is directed to be deleted. Accordingly, the effective grounds raised
by the assessee are allowed.
14. Since we have deleted the addition u/s 69A of the Act, the appeal of the revenue in ITA No. 4652/Mum/2024, is automatically dismissed on this ground.
15. The second issue in the revenue’s appeal pertains to the deletion of the legal expenses. The underlying facts in this issue are that the assessee from had claimed legal fee expenses in respect of legal fees paid to Shri Kiran Javali at Rs. 1,75,000/- and Shri Madhu N. Rao at Rs. 2,25,000/- totaling to Rs. 4,00,000/- for release of jewellery which was seized by the Bangalore Police on 20/11/2020. Since the AO has treated the seized jewellery as unexplained assets, the legal expenses were accordingly disallowed. Since we have held that there is no unexplained jewellery u/s 69A of the Act and deleted the impugned addition, we do not find any reason to interfere with the findings of the ld. CIT(A). This ground is accordingly dismissed.
16. Coming to the appeal in ITA No. 4651/Mum/2024 in the name of Divesh Prakashchand Jain, partner of M/s. S.S. Jewellery, we find that double addition u/s 69A of the Act, has been made in the hands of the partner of the same Jewellers which has been considered by us in ITA No. 4542/Mum/2024 (supra). For our detailed discussion therein, this appeal by the revenue is dismissed.
I.T.A. No. 4542/Mum/2 10
In the result, appeal of the assessee in is allowed and appeals by the revenue in I.T.A. No. 4651/Mum/2024 are dismissed.