The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of rS. 63,93,594 made after jewellery was found in a taxpayer’s locker and held that the jewellery found in locker doesn’t automatically become unexplained income.
The bench of Sudhir Kumar (Judicial Member) and M. Balaganesh (Accountant Member) has observed that old valuation reports, the family’s circumstances and customary gifting of jewellery supported the taxpayer’s explanation.
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The dispute arose from a search connected with Faquir Chand Lockers and Vaults Private Limited. A search warrant was issued in Jalan’s name, and officers searched his locker on December 1, 2018. They found 2,088.78 grams of jewellery valued at ₹63,93,594.
The Assessing Officer treated the entire value as unexplained and added it to Jalan’s income. The Commissioner of Income Tax (Appeals) upheld the addition, reasoning that the jewellery was found in his individual locker and that the old valuation reports did not establish its acquisition from disclosed sources.
The assessee argued that the jewellery belonged to him and his family members. He relied on valuation reports from 2001 and 2009 prepared by government approved valuers in the names of family members. According to him, these records showed that the family had held jewellery long before the search.
He also submitted that jewellery received through inheritance or as gifts at weddings and other family occasions may not be supported by purchase bills. The Revenue maintained that he had failed to prove ownership and source through bills or vouchers.
The Tribunal found that the earlier valuation reports supported the explanation that the jewellery was old and held by family members. It also considered CBDT Instruction No. 1916, dated May 11, 1994, which sets out quantities of jewellery ordinarily not to be seized during a search. Based on the family composition discussed in the order, the Tribunal referred to a quantity of 1,400 grams.
The ITAT noted that the instruction also permits an authorised officer to consider a family’s status, community customs and other circumstances when deciding whether a larger quantity should be excluded from seizure. It relied on the Delhi High Court’s decision in Ashok Chadha v. ITO, which recognised that jewellery may accumulate over years of marriage and through customary gifts.
Considering the valuation reports, the family’s circumstances and the judicial decisions cited, the Tribunal accepted Jalan’s explanation and deleted the full addition of ₹63,93,594. It allowed the appeal.
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