2025 (6) TMI 131 - AT - Income Tax

Valid approval granted by the Jt. CIT (Central) u/s 153D - treating the gold jewellery/ornaments (Wt. 437.700 grams) and bullion (Wt. 329 grams) as an unexplained investment in the hands of the assessee - HELD THAT - As the facts involved in the present case remains the same as were there before Hitesh Golecha 2024 (4) TMI 1142 - CHHATTISGARH HIGH COURT wherein had looked into the similarly worded approval granted by the Jt. CIT Range-Central Raipur and had rejected the assessee s claim that the said approval was granted without application of mind by the latter therefore we respectfully follow the same. Accordingly as the Jt. CIT Range-Central Raipur inter alia granted the approval in the case of the assessee for the year under consideration i.e. A.Y. 2015-16 therefore we in terms of our aforesaid observations finding no merit in the contentions advanced by the Ld. AR reject the same. Unexplained investment u/s 69 - As the assessee had neither before lower authorities nor before us placed on record any material/documentary evidence which would substantiate her claim that it was her old jewellery that was got converted into bullion (Wt. 329 grams) therefore we are of the view that treating the value of the same of Rs. 8, 89, 170/- as the assessee s unexplained investment u/s 69 of the Act does not suffer from any infirmity. We thus approve that addition to the aforesaid extent made by the AO which thereafter had rightly been upheld by the CIT(A). Addition regarding the source of balance gold jewellery (Wt. 437.700 grams) we are unable to fully persuade ourselves to subscribe to the view taken by the lower authorities. As CBDT instructions No.1916 read along with the aforesaid judicial pronouncements look into the view taken by the lower authorities which had held that the gold jewellery/ornaments (Wt. 437.700 grams) found lying in the locker no. 49 as the assessee s unexplained investment u/s 69. Gold jewellery/ornaments aggregating to 911.776 grams i.e 421.55 grams ( ) 490.226 grams as per the CBDT Instruction No. 1916 dated 11.05.1994 as analyzed in the aforesaid judicial pronouncements can safely be held to be available with the assessee and Shri. Vishal Daga to explain the source of the gold jewellery/ornaments found during the course of the search seizure proceedings from their locker no. 49. Resultantly the gold jewellery/ornaments of 125.924 grams i.e 1037.700 grams (minus) 911.776 grams found lying in the locker no. 49 is to be held as unexplained. At the same time as the locker no. 49 was jointly held by the assessee and Shri. Vishal Daga (supra) therefore 62.962 grams (50% of 125.924 grams of gold jewellery/ornaments can safely be held as an unexplained investment in the hands of the assessee. We thus in terms of our aforesaid observations direct the A.O to restrict the addition in the case of the assessee to the extent of the value of 62.962 grams i.e Rs. 1, 71, 886/-. The Ground of appeal No. 1 is partly allowed in terms of our aforesaid observations. Accordingly we herein conclude viz. (i). the addition of bullion (Wt. 329 grams) of Rs. 8, 89, 170/- is sustained; and (ii). the addition of balance gold jewelry/ornaments of 437.700 grams valued at Rs. 11, 94, 921/- made by the A.O. is scaled down to 62.962 grams valued at Rs. 1, 71, 886/-.

Summary

The appeal involves two core legal issues: (i) the validity of the approval granted by the Joint Commissioner of Income Tax (Jt. CIT) under Section 153D of the Income-tax Act, 1961 ("the Act") for framing the assessment order; and (ii) the correctness of the addition made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] treating certain gold jewellery/ornaments and bullion found during search proceedings as unexplained investments in the hands of the assessee.

Regarding the first issue, Section 153D mandates that before an assessment or reassessment is made following search and seizure proceedings under Section 132, the approval of the Jt. CIT must be obtained. The question was whether such approval was validly granted in accordance with the law. The assessee contended that the approval was not in accordance with the provisions, rendering the assessment order void ab initio.

The Court examined the record and found that the Jt. CIT, Range-Central, Raipur, had granted approval by letter dated 22.09.2016 for the draft assessment order passed by the A.O. for the relevant assessment year. The letter contained specific directions for incorporation of seized material, findings during search, opportunity given to the assessee, reasons for rejecting the assessee's explanation, and justification for accepting certain documents. The Court noted that the assessee failed to produce any material to prove lack of application of mind by the Jt. CIT in granting approval. The Court relied on a recent High Court decision which held that the language of the approval letter indicated subjective satisfaction based on documents before the Jt. CIT, and that mere assertion by the assessee of no application of mind cannot be presumed. The Court further observed that under Section 114 of the Evidence Act, official acts done in accordance with procedure lead to a presumption of due diligence. Consequently, the Court held that the statutory mandate under Section 153D was duly complied with and dismissed the challenge to the validity of the approval.

The second issue concerns the addition of Rs. 20,93,091/- made by the A.O. on account of unexplained investment in gold jewellery/ornaments and bullion found during search at locker no. 49 held jointly by the assessee and her son. The A.O. seized 210.200 grams of gold jewellery and 329 grams of bullion from the locker. The total gold jewellery found was 1037.700 grams. The A.O. applied CBDT Instruction No. 1916 dated 11.05.1994, which prescribes that gold jewellery up to 500 grams per married woman and 100 grams per male family member is not to be seized or treated as unexplained. Accordingly, the A.O allowed 500 grams for the assessee and 100 grams for her son as explained, and treated the remaining 437.700 grams as unexplained investment valued at Rs. 11,94,921/-. The entire bullion of 329 grams valued at Rs. 8,98,170/- was treated as unexplained investment as the assessee failed to produce bills or vouchers substantiating conversion of old jewellery into bullion.

The CIT(A) confirmed the addition, observing that the assessee had not produced any purchase bills or wealth tax returns for the relevant years, and the explanation regarding source of bullion was not acceptable. The CIT(A) also relied on judicial precedents allowing exemption of gold jewellery within prescribed limits per family member as explained, but upheld the addition for unexplained jewellery beyond those limits.

The assessee contended that the jewellery found belonged to various family members and was received on auspicious occasions, including marriage, and that it was common practice to convert old jewellery into bullion. The assessee argued that due to passage of time, bills were not available and that the total jewellery found was within the limits prescribed by the CBDT instruction. The assessee also submitted documentary evidence and inventories showing breakup of jewellery among family members.

The Court, after considering the CBDT Instruction No. 1916 and judicial precedents from coordinate benches, held that jewellery within the prescribed limits per family member should be treated as explained and not subjected to addition. The Court noted that 1495.06 grams of gold jewellery/ornaments were found from the locker and residences of the assessee and her family members. The Court analyzed the inventory and found that the jewellery held by the assessee and her husband in their bedroom amounted to 178.450 grams, and by her son and his wife 109.774 grams, among others.

Applying the CBDT prescribed limits (500 grams per married female and 100 grams per male), the Court observed that the assessee and her husband could be held to possess 421.55 grams of jewellery from explained sources, and her son and his wife 490.226 grams, aggregating to 911.776 grams. Deducting this from the total jewellery found in the locker (1037.700 grams), 125.924 grams remained unexplained. Since the locker was jointly held by the assessee and her son, the Court apportioned half (62.962 grams) as unexplained investment attributable to the assessee.

Regarding the bullion of 329 grams, the Court found no documentary evidence supporting the claim of conversion from old jewellery and upheld the addition of Rs. 8,98,170/- as unexplained investment under Section 69 of the Act. The Court noted that the assessee had explained the source but failed to substantiate with bills or vouchers, and that the A.O. rightly did not draw any adverse inference against the joint locker holder, her son, since the bullion was owned and explained by the assessee alone.

In conclusion, the Court sustained the addition made for bullion in full and partly allowed the appeal on the gold jewellery addition by restricting it to 62.962 grams valued at Rs. 1,71,886/-. The Court dismissed the ground challenging the validity of the approval under Section 153D and partly allowed the ground challenging the quantum of addition on gold jewellery.

Significant holdings include the following verbatim observations:

"As the Jt. CIT, Range-Central, Raipur had, vide his letter dated 22.09.2016... granted his approval u/s. 153D of the Act to the draft assessment order... the mandate of Section 153D of the Act stood duly complied with... it cannot be presumed on the mere say of the assessee that no application of mind was there while granting the approval... the language used in the letter granting the approval revealed the subjective satisfaction that was arrived at based on the documents that were produced before the Jt. CIT... the approval need not be a detailed assessment order... in case where the official act had been done in accordance with official procedure, then it would lead to presumption that due diligence was followed."

"...the jewellery to the extent of the prescribed limit contemplated in the CBDT Instruction No. 1916... is not to be treated as having been acquired by the assessee out of unexplained sources... possession of gold jewellery by married ladies to the extent of 500 gms. should be considered as explained... the intention behind such circular was very clear."

"...the assessee and her spouse could safely be held to be in possession of 421.55 grams of gold jewellery/ornaments acquired from their explained sources... Shri. Vishal Daga and his spouse could safely be held to be in possession of 490.226 grams... gold jewellery/ornaments aggregating to 911.776 grams as per the CBDT Instruction No. 1916... can safely be held to be available with the assessee and Shri. Vishal Daga to explain the source of the gold jewellery/ornaments found... the gold jewellery/ornaments of 125.924 grams found lying in the locker... is to be held as unexplained... 62.962 grams (50% of 125.924 grams) can safely be held as an unexplained investment in the hands of the assessee."

The principles established affirm the necessity of valid approval under Section 153D before framing search-based assessments, the applicability of CBDT Instruction No. 1916 in determining explained jewellery limits, and the requirement of documentary evidence to substantiate claims of source for bullion or jewellery. The ruling clarifies that jewellery found jointly held in a locker must be apportioned among joint holders based on ownership and explanation, and unexplained portions are liable for addition under Section 69.