Does the jewellery instruction explain the source of the gold, or only stop the department seizing it?
It explains the source, to the extent of the quantities in it. The Gujarat High Court held that the Board's circular proceeds on recognised customs prevailing in Hindu society, so possession of jewellery within those quantities is taken to be explained unless the Revenue shows otherwise.
Decided by the High Court (Gujarat High Court — D.A. Mehta and Ms. H.N. Devani, JJ. (judgment delivered by Devani, J.)) on 2010-07-19, reported as (2011) 339 ITR 351 (Guj)(HC); [2010] 2 taxmann.com 997 (Guj); Tax Appeal Nos. 661 and 662 of 2009. It bears on section 69A, section 69C, section 40A(3), section 132, section 158BC of the Income Tax Act 1961, in Search, Survey & Block Assessment, Evidence & Burden of Proof and Cash Credits & Unexplained Money matters.
This is the reasoning, as against the result, that practitioners rely on. It converts a seizure instruction into a presumption about source, and it puts the burden of displacing that presumption on the Revenue. It is the answer to an officer who says the instruction is irrelevant because he is not seizing anything, he is assessing.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee's residence was searched on 30 June 1998 and he was assessed for the block period under s.158BC; a block return of Rs 30 lakh of undisclosed income was met with a block assessment of Rs 1,68,79,830. Jewellery weighing 1,632.8 gm was seized from the residence. The Assessing Officer accepted 567 gm as explained in the hands of three women of the family, accepted 227.1 gm belonging to the son and two daughters, allowed a lump sum of 800 gm, and treated the balance of 655 gm, valued at Rs 3,46,668, as undisclosed investment. The Commissioner (Appeals) reduced the addition to Rs 1,01,145, rejecting 40 gm claimed for the wife and sister and 223.4 gm claimed for another family member; the Tribunal, applying the Board's instruction with the size of the family in view, deleted the addition in full. Two further grounds travelled to the High Court out of the same consolidated Tribunal order: interest of Rs 3,77,498 said to be unexplained, appearing against an unnamed account in a seized paper, and a disallowance of Rs 63,51,540 under s.40A(3), being 20 per cent of cash purchases estimated at Rs 3 crore after the books had been rejected. There is no assessment year: this is a block assessment.
Both appeals were dismissed for want of any question of law. On the jewellery, the source to the extent of the quantities set out in the Board's instruction stands explained, and it is for the Revenue to show anything to the contrary. On the interest, the deletion was upheld on the narrow footing that there were concurrent findings of fact that the assessee had made no claim for payment of the interest, so there was nothing to disallow; the Court expressly left open whether an amount brought to tax under s.69C, being business expenditure, would attract an identical deduction so that no income results. On the third ground, a disallowance under s.40A(3) cannot be founded on an estimate of cash purchases: the onus is on the Revenue to prove that expenditure above the specified limit was incurred, and no material showed any payment above Rs 20,000. The gross profit rate, the cheque and bill discounting additions and the house renovation addition were all treated as findings of fact raising no question of law.
The Court accepted that the instruction was issued to govern seizure, but held that its basis is the quantity of jewellery which would generally be held by the family members of an assessee belonging to an ordinary Hindu household. Extending that to the explanation of source is in consonance with the general practice in Hindu families by which jewellery is gifted by relatives and friends at marriages, birthdays, marriage anniversaries and other festivals; those gifts are customary, and customs prevailing in a society cannot be ignored. From that the Court drew the presumption: unless the Revenue shows anything to the contrary, the source to the extent of the jewellery stated in the circular stands explained. The Tribunal had applied the instruction with the size of the family in view and found each member's holding to be below the quantities specified, and that approach could not be faulted. On s.40A(3) the reasoning runs the other way from the usual departmental submission: the onus is on the Revenue to prove that a payment above the specified limit was made, and a disallowance cannot rest on an estimate of cash purchases arrived at after rejection of the books.
Thus although the circular had been issued for the purpose of non-seizure of jewellery during the course of search, the basis for the same recognizes customs prevailing in Hindu society. In the circumstances, unless the revenue shows anything to the contrary, it can safely be presumed that the source to the extent of the jewellery stated in the circular stands explained.
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Handle my notice → Ask a CA on WhatsAppIt explains the source, to the extent of the quantities in it. The Gujarat High Court held that the Board's circular proceeds on recognised customs prevailing in Hindu society, so possession of jewellery within those quantities is taken to be explained unless the Revenue shows otherwise. This was decided by the High Court (Gujarat High Court — D.A. Mehta and Ms. H.N. Devani, JJ. (judgment delivered by Devani, J.)) and bears on section 69A, section 69C, section 40A(3), section 132, section 158BC of the Income Tax Act 1961. It is reported as (2011) 339 ITR 351 (Guj)(HC); [2010] 2 taxmann.com 997 (Guj); Tax Appeal Nos. 661 and 662 of 2009. This is the reasoning, as against the result, that practitioners rely on. It converts a seizure instruction into a presumption about source, and it puts the burden of displacing that presumption on the Revenue. It is the answer to an officer who says the instruction is irrelevant because he is not seizing anything, he is assessing. If it applies to you, the first step is this: Argue the presumption in terms: the quantities in the instruction are what the Board itself accepts as customary holdings, so the source of that much stands explained.
The assessee's residence was searched on 30 June 1998 and he was assessed for the block period under s.158BC; a block return of Rs 30 lakh of undisclosed income was met with a block assessment of Rs 1,68,79,830. Jewellery weighing 1,632.8 gm was seized from the residence. The Assessing Officer accepted 567 gm as explained in the hands of three women of the family, accepted 227.1 gm belonging to the son and two daughters, allowed a lump sum of 800 gm, and treated the balance of 655 gm, valued at Rs 3,46,668, as undisclosed investment. The Commissioner (Appeals) reduced the addition to Rs 1,01,145, rejecting 40 gm claimed for the wife and sister and 223.4 gm claimed for another family member; the Tribunal, applying the Board's instruction with the size of the family in view, deleted the addition in full. Two further grounds travelled to the High Court out of the same consolidated Tribunal order: interest of Rs 3,77,498 said to be unexplained, appearing against an unnamed account in a seized paper, and a disallowance of Rs 63,51,540 under s.40A(3), being 20 per cent of cash purchases estimated at Rs 3 crore after the books had been rejected. There is no assessment year: this is a block assessment. The matter was decided on 2010-07-19 by the High Court (Gujarat High Court — D.A. Mehta and Ms. H.N. Devani, JJ. (judgment delivered by Devani, J.)). On those facts the High Court held as follows. Both appeals were dismissed for want of any question of law. On the jewellery, the source to the extent of the quantities set out in the Board's instruction stands explained, and it is for the Revenue to show anything to the contrary. On the interest, the deletion was upheld on the narrow footing that there were concurrent findings of fact that the assessee had made no claim for payment of the interest, so there was nothing to disallow; the Court expressly left open whether an amount brought to tax under s.69C, being business expenditure, would attract an identical deduction so that no income results. On the third ground, a disallowance under s.40A(3) cannot be founded on an estimate of cash purchases: the onus is on the Revenue to prove that expenditure above the specified limit was incurred, and no material showed any payment above Rs 20,000. The gross profit rate, the cheque and bill discounting additions and the house renovation addition were all treated as findings of fact raising no question of law.
The Court accepted that the instruction was issued to govern seizure, but held that its basis is the quantity of jewellery which would generally be held by the family members of an assessee belonging to an ordinary Hindu household. Extending that to the explanation of source is in consonance with the general practice in Hindu families by which jewellery is gifted by relatives and friends at marriages, birthdays, marriage anniversaries and other festivals; those gifts are customary, and customs prevailing in a society cannot be ignored. From that the Court drew the presumption: unless the Revenue shows anything to the contrary, the source to the extent of the jewellery stated in the circular stands explained. The Tribunal had applied the instruction with the size of the family in view and found each member's holding to be below the quantities specified, and that approach could not be faulted. On s.40A(3) the reasoning runs the other way from the usual departmental submission: the onus is on the Revenue to prove that a payment above the specified limit was made, and a disallowance cannot rest on an estimate of cash purchases arrived at after rejection of the books. In the words reproduced by the source cited on this page: "Thus although the circular had been issued for the purpose of non-seizure of jewellery during the course of search, the basis for the same recognizes customs prevailing in Hindu society. In the circumstances, unless the revenue shows anything to the contrary, it can safely be presumed that the source to the extent of the jewellery stated in the circular stands explained."
It was decided by the High Court on 2010-07-19 and is reported as (2011) 339 ITR 351 (Guj)(HC); [2010] 2 taxmann.com 997 (Guj); Tax Appeal Nos. 661 and 662 of 2009. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 69A, section 69C, section 40A(3), section 132, section 158BC, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Both appeals were dismissed for want of any question of law. On the jewellery, the source to the extent of the quantities set out in the Board's instruction stands explained, and it is for the Revenue to show anything to the contrary. On the interest, the deletion was upheld on the narrow footing that there were concurrent findings of fact that the assessee had made no claim for payment of the interest, so there was nothing to disallow; the Court expressly left open whether an amount brought to tax under s.69C, being business expenditure, would attract an identical deduction so that no income results. On the third ground, a disallowance under s.40A(3) cannot be founded on an estimate of cash purchases: the onus is on the Revenue to prove that expenditure above the specified limit was incurred, and no material showed any payment above Rs 20,000. The gross profit rate, the cheque and bill discounting additions and the house renovation addition were all treated as findings of fact raising no question of law. It arises in Search, Survey & Block Assessment, Evidence & Burden of Proof and Cash Credits & Unexplained Money matters, on section 69A, section 69C, section 40A(3), section 132, section 158BC of the Income Tax Act 1961, and was decided by Gujarat High Court — D.A. Mehta and Ms. H.N. Devani, JJ. (judgment delivered by Devani, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Then make the Revenue say what material it has to displace the presumption for the quantity it wants to tax. Keep the argument to gold jewellery and ornaments — the fetched sources do not extend it to bullion, silver or loose stones. Produce bills and gift evidence for anything above the permitted quantity, because the decision does nothing for the excess.
Still good law. Applied in later Tribunal reasoning. In Mrs. Nawaz Singhania v. DCIT [2017] 88 taxmann.com 327 / 168 ITD 478 / 191 TTJ 650 (Mum.)(Trib.), 22 December 2017, the Bench held at para 29 that the basis of Instruction No. 1916 is the recognition of customs prevailing in Hindu society and that it had been so held by the Gujarat High Court in this case. That order reproduces, at its para 16, the earlier Mumbai order in Rafiq Mohd. Nazir Shaikh v. DIT [IT Appeal No. 465 (Mum.) of 2012, dated 8 May 2013], in which the Bench held the issue squarely covered in favour of the assessee by this decision and, following it, upheld the deletion. Both are Tribunal decisions, so the proposition has not been taken up again at High Court level. Nothing overruling, doubting or reversing it was found, and no leave petition is disclosed. The divergence recorded in the alert was not re-tested in this pass and stands as written. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment was read in full and the facts, the holdings and the quoted sentence now come from its numbered paragraphs rather than from an article. Three points a reader should carry. First, this is a three-issue judgment and the jewellery ground is only the first of them; the holding at paras 16-17 that a disallowance under s.40A(3) cannot be founded on an estimate of cash purchases is independently useful and is not reflected in the title of this entry. Second, the reported text is internally inconsistent about the date of the instruction: paras 8 and 9 print 11 May 1992 while para 10 prints 11 May 1994. The instruction is dated 11 May 1994, as its full text quoted in later decisions shows; do not repeat the 1992 date. Third, the caution that circulated with the earlier sourcing of this entry - that the decision protects against seizure and does not automatically defeat an addition - is an author's caution and not the Court's, but the judgment's own words carry their own limit: the presumption runs only to the quantities stated in the instruction, and it is rebuttable. There is no assessment year to give: the assessment is a block assessment following the search of 30 June 1998. The judgment does not tell you whether the presumption survives where the assessee has given a specific explanation for the same jewellery which is then found to be false, and it does not extend the instruction beyond gold jewellery and ornaments to bullion, silver or loose stones. The question left open at para 14 - whether an amount brought to tax under s.69C, being business expenditure, attracts an identical deduction - is undecided by this Court. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both appeals were dismissed for want of any question of law. On the jewellery, the source to the extent of the quantities set out in the Board's instruction stands explained, and it is for the Revenue to show anything to the contrary. On the interest, the deletion was upheld on the narrow footing that there were concurrent findings of fact that the assessee had made no claim for payment of the interest, so there was nothing to disallow; the Court expressly left open whether an amount brought to tax under s.69C, being business expenditure, would attract an identical deduction so that no income results. On the third ground, a disallowance under s.40A(3) cannot be founded on an estimate of cash purchases: the onus is on the Revenue to prove that expenditure above the specified limit was incurred, and no material showed any payment above Rs 20,000. The gross profit rate, the cheque and bill discounting additions and the house renovation addition were all treated as findings of fact raising no question of law.
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