The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted additions totalling ₹1.13 crore relating to jewellery and cash found during a National Investigation Agency (NIA) search, holding that the tax authorities could not reject evidence of family ownership merely because married daughters had kept their jewellery at their father’s residence.

The bench of  Raj Kumar Chauhan (Judicial Member) and S. Rifaur Rahman(Accountant Member) observed that keeping married daughters’ jewellery at their parental home is consistent with prevailing customs and is not prohibited by law. It also found that the jewellery had only been weighed, without any valuation, making the ₹92 lakh addition on account of alleged unexplained jewellery ad hoc.

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The dispute arose from an NIA search at the assessee’s premises on January 23, 2019, during which ₹21 lakh in cash and approximately 3.9 kilograms of jewellery were found and seized. Information available to the Income Tax Department placed the jewellery’s value at ₹1.56 crore.

The assessee had filed his income tax return on July 8, 2019, declaring income of ₹10,45,480. The Assessing Officer considered this income disproportionate to the cash and jewellery found during the search and initiated reassessment proceedings.

A notice under Section 148A(b) of the Income-tax Act, 1961, was issued on February 23, 2023. Following consideration of the assessee’s response, an order under Section 148A(d) and a notice under Section 148 were issued on March 24, 2023. The assessment subsequently proceeded under the faceless assessment framework.

The assessee maintained that the jewellery belonged to his late wife and three married daughters. According to his explanation, the ornaments had been received from their parental families and in-laws on their respective marriages in 1974, 2001, 2004 and 2005.

To support this account, he furnished affidavits from family members and the daughters’ in-laws, along with wedding photographs identifying individual jewellery items. He also relied on the family’s financial standing and income disclosed over several years.

The Assessing Officer rejected the explanation, citing the absence of purchase bills, vouchers and evidence of payments. The officer also questioned why married daughters would keep their jewellery at their father’s residence instead of their matrimonial homes.

After allowing credit for 1,600 grams, the Assessing Officer treated the remaining 2.3 kilograms, valued at ₹92 lakh, as unexplained investment. The Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, upheld the addition.

The Tribunal rejected the premise that jewellery belonging to married daughters could not ordinarily remain at their parental residence.

It noted that the assessee had furnished affidavits confirming marriage gifts, supported by photographs taken during the wedding ceremonies. These materials supported the explanation that the jewellery belonged to his late wife and daughters.

The Bench observed that the authorities had overlooked the customary practice of married daughters keeping jewellery at their parental home. It further held that there was no legal prohibition against keeping relatives’ jewellery at one’s residence.

The Tribunal also took account of the assessee’s financial position and the substantial taxable income disclosed over earlier assessment years. These circumstances supported his explanation that the family had the means to acquire the jewellery over time.

The Bench found fault with the Assessing Officer’s reliance on the difference between the assessee’s income for the relevant year and the jewellery found during the search.

The jewellery, the Tribunal reasoned, could represent acquisitions accumulated over earlier years. Its possession could not simply be linked to the income declared for assessment year 2019-20.

The assessee’s case was that the ornaments had been received on marriages held many years before the search. The Tribunal assessed that explanation against the supporting evidence, family circumstances and income history.

The Tribunal noted that the search had been conducted by the NIA, rather than the Income Tax Department. It recorded that the seized jewellery and cash were subsequently returned pursuant to a court order and that the Assessing Officer had not examined the seized items.

Crucially, the jewellery had been weighed but had not been valued either during the search or subsequently.

Against that background, the Bench held that the ₹92 lakh addition was made on an ad hoc basis, which was impermissible in law.

The Tribunal also considered CBDT Instruction No. 1916 dated May 11, 1994, concerning non-seizure of specified quantities of jewellery during income tax searches.

It noted that the benchmark of 500 grams for each married woman would account for two kilograms in respect of the assessee’s late wife and three married daughters alone. The Assessing Officer had granted relief for only 1.6 kilograms.

The Bench considered these benchmarks together with the other family members, the family’s financial status, historical income and evidence explaining ownership. Its conclusion therefore rested on the overall facts, rather than treating the instruction as an unconditional tax exemption for jewellery.

The Tribunal drew support from decisions addressing customary jewellery holdings and streedhan, including CIT v. Satya Narain Patni, Ashok Chhadha v. ITO, Neeti Rastogi v. ACIT and Smt. Ritu Bajaj v. DCIT. It accordingly deleted the ₹92 lakh addition.

On the cash addition, the assessee relied on withdrawals made by him and his family members before the search, supported by bank statements.

His submissions identified withdrawals of ₹36.20 lakh between April 1, 2018, and January 23, 2019. He also pointed out that the first appellate authority had recorded a higher aggregate of family withdrawals.

The Assessing Officer had rejected the explanation on the reasoning that periodic withdrawals of ₹50,000 to ₹1 lakh appeared to be for household expenses and could not be assumed to have remained available as cash.

The Tribunal, however, examined the bank statements and withdrawal details placed on record. It found that the assessee and his family had withdrawn substantial cash during the relevant period and that the source of the ₹21 lakh found during the search had been explained.

Finding no reason to sustain the addition, the Bench deleted it.

The Tribunal allowed the appeal and deleted both disputed additions, granting relief of ₹1.13 crore. A separate ground challenging the validity of the assessment order was not pressed and was therefore not adjudicated.

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