The Income Tax Appellate Tribunal (ITAT) has deleted an addition of approximately Rs. 3.86 lakh relating to jewellery found during an income-tax search, holding that diamond and precious-stone-studded ornaments cannot be excluded from the benefit of the permissible jewellery limits prescribed under CBDT Instruction No. 1916 merely because they are not made entirely of gold.
The Bench comprising Anubhav Sharma, Judicial Member, and Khettra Mohan Roy, Accountant Member, also held that the enhanced tax rate of 60% under Section 115BBE of the Income Tax Act, 1961, could not be applied where the search was conducted before the amended provision came into operation.
A search and seizure operation under Section 132 of the Income Tax Act was conducted in the case of the D.P. Jain Group on July 26, 2016, during which the assessee was also covered. The assessee subsequently filed his income-tax return declaring a total income of Rs. 7.16 lakh.
Buy Now: 80+ Income Tax Judgments | E-Magazine July 2026
During the search, jewellery weighing 2,434 grams and valued at approximately Rs. 90.59 lakh was found. Out of this, jewellery weighing 1,314 grams and valued at Rs. 33.33 lakh was seized. Cash of Rs. 7.06 lakh was also found, of which Rs. 5 lakh was seized.
The Assessing Officer completed the assessment under Section 143(3), determining the assessee’s total income at Rs. 57.16 lakh after making an addition of Rs. 50 lakh under Section 69A as unexplained money or undisclosed income.
In the first appeal, the CIT(A) granted substantial relief but sustained an addition of Rs. 3,86,186 concerning four jewellery items. These items had a gross weight of 158 grams, a net weight of 104.70 grams and contained stones or diamonds measuring 6.90 carats.
The CIT(A) held that the source of these four items remained unexplained. It was further observed that CBDT Instruction No. 1916, dated May 11, 1994, referred to gold jewellery and did not cover diamond-studded jewellery. According to the CIT(A), the Instruction merely laid down guidelines concerning the seizure of jewellery during a search and could not, by itself, be treated as an explanation of the source of the ornaments.
The addition sustained by the appellate authority included a “Ring Jhumka” valued at Rs. 1,07,116 and precious-stone-studded jewellery valued at Rs. 2,79,050.
Appearing before the Tribunal, the assessee contended that an item-wise explanation concerning the ownership and source of the jewellery had been submitted before the lower authorities.
It was explained that two of the disputed items—a ruby pendant set weighing 25.5 grams and a set with a bracelet weighing 30.3 grams—belonged to the assessee’s wife. She had reportedly received the ornaments as gifts from her parents on the birth of her two daughters.
The assessee argued that the ownership of these ornaments had consistently been claimed by his wife during the assessment and appellate proceedings. Therefore, the value of those items could not be treated as unexplained investment in the assessee’s hands merely because they were found at the family’s common residence.
The Tribunal accepted this contention after examining the jewellery annexure and the explanation submitted before the authorities. It noted that the relevant annexure was in the name of the assessee’s wife and that her ownership claim had been made before both the Assessing Officer and the CIT(A).
The ITAT observed that gifts from parents on important family occasions, including the birth of children, were normal and customary in Indian Marwari families. It found that the explanation had been disregarded by the lower authorities without any plausible reason.
“Where the ownership of jewellery is identifiable and it belongs to the wife or another family member, the addition cannot be sustained in the hands of the assessee merely because it was found during search at the common residence,” the Tribunal observed.
The Bench also recorded that no evidence had been discovered during the search to establish that the assessee had made any investment in those two ornaments.
Accordingly, it held that the two jewellery items, having a total weight of 55.8 grams and a value of Rs. 2,57,615, belonged to the assessee’s wife. The corresponding addition in the assessee’s hands was therefore deleted.
The remaining dispute related to two jewellery items weighing 43.9 grams and five grams, respectively. The Tribunal noted that the assessee had claimed ownership of jewellery weighing a total of 121.5 grams.
Out of this quantity, jewellery weighing 72.6 grams had been purchased through banking channels between 2008 and 2011. The acquisitions were supported by the assessee’s books of account, ledger entries, bank records and purchase details. The source of these ornaments was consequently treated as explained.
The only remaining jewellery owned by the assessee weighed 48.9 grams. The Tribunal found this quantity to be well within the 100-gram limit prescribed for a male family member under CBDT Instruction No. 1916.
The Bench took into account that the assessee was a 41-year-old married Hindu man, had been married for approximately 15 years, had two daughters and was a practising chartered accountant. Considering his age, occupation, earning capacity, family traditions and social standing, possession of 48.9 grams of jewellery acquired over his lifetime could not be considered unreasonable.
The ITAT rejected the CIT(A)’s finding that the CBDT Instruction was inapplicable to diamond-studded jewellery.
“In common parlance, gold jewellery includes diamond and precious stone studded jewellery also,” the Tribunal observed.
Relying on the Delhi Bench decision in Kumkum Kanodia v. DCIT, the Tribunal said that jewellery could not be treated as unexplained merely because it was studded with diamonds when its gross weight remained within the permissible limits prescribed under CBDT Instruction No. 1916.
The Bench added that a contrary interpretation would produce an absurd result because jewellery worn in India frequently contains diamonds or other precious stones along with gold. It consequently deleted the addition of Rs. 21,435 relating to the diamond-studded ring weighing five grams.
Regarding the “Ring Jhumka” weighing 43.9 grams, the CIT(A) had expressed doubt that such an ornament could have been received by a male assessee. The Tribunal, however, found that the objection based on the ornament’s nomenclature was not sufficient to reject the assessee’s explanation.
It observed that men also wear ornaments and that nomenclature may differ across communities. The Tribunal referred to traditions in Rajasthani families, where male members may wear a “Bali” in their ears, while an ornament described as a “Ring Jhumka” could also be used for holding keys.
Irrespective of the precise description, the Tribunal noted that the assessee had accepted ownership and explained that the item had been received as a gift from relatives on various occasions.
The Bench observed that under Hindu traditions, gold ornaments, jewellery and personal effects are commonly gifted on significant occasions throughout an individual’s life, beginning from birth. Considering the assessee’s family background and social standing, jewellery weighing 43.9 grams received over his lifetime was reasonable and not excessive.
The Tribunal also referred to earlier judicial decisions recognising that the age, family background, customs, traditions and social status of the taxpayer must be considered while examining jewellery found during a search.
It cited the Delhi High Court’s decision in Ashok Chaddha v. ITO, where possession of 906.60 grams of jewellery by a married woman was accepted even in the absence of documentary evidence. The High Court had recognised that receiving jewellery as “streedhan” and on occasions such as childbirth was customary.
The ITAT accordingly held that the CIT(A) had erred in treating the Ring Jhumka valued at Rs. 1,07,116 as unexplained. It deleted the entire addition sustained in relation to the four jewellery items.
The Tribunal separately considered the applicability of the enhanced tax rate under Section 115BBE. The assessee argued that the higher rate introduced through the Taxation Laws (Second Amendment) Act, 2016, could not be applied retrospectively to a search conducted on July 26, 2016.
Accepting the contention, the ITAT held that the enhanced 60% rate was prospective and could not apply to the assessee’s case because the search had taken place before December 15, 2016.
The Bench relied upon the Madras High Court’s ruling in S.M.I.L.E. Microfinance Ltd. v. ACIT and the Rajasthan High Court’s decision in Deepak Maratha v. Union of India. It noted that the Rajasthan High Court had held that the Taxation Laws (Second Amendment) Act, 2016, operated prospectively, with the amendment to Section 115BBE taking effect from April 1, 2017.
Allowing both substantive grounds raised by the assessee, the ITAT deleted the jewellery addition and rejected the application of the enhanced rate under Section 115BBE. The assessee’s appeal was allowed in full.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
