Income tax on gold jewellery: ITAT says CBDT limits cannot cap family holdings, deletes ₹20.45 lakh addition

The Delhi ITAT deleted a ₹20.45 lakh addition for unexplained family jewellery, ruling that CBDT’s seizure guidelines cannot automatically cap how much gold a taxpayer can explain. The tribunal considered the family’s income, financial position and customary practices.

Families may accumulate gold jewellery over decades through weddings, inheritance and gifts. When the Income Tax Department finds jewellery during a search, the absence of old purchase bills can make it difficult to establish when and how the gold was acquired.

In a ruling involving Ankur Sharma, the Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the tax department cannot mechanically restrict the quantity of jewellery accepted as explained to the limits mentioned in Central Board of Direct Taxes (CBDT) instructions. The tribunal deleted a ₹20.45 lakh addition to Sharma’s taxable income after considering the family’s financial circumstances and income-tax returns.

The order was pronounced on 6 October 2023 in ITA No. 1843/Del/2022 for assessment year 2019-20. It concerned gold jewellery worth ₹1.46 crore found at the family’s residence in Ghaziabad during an income-tax search.

Why did the tax department treat part of the gold as unexplained?

During the search, officials found 3,877.5 grams of gold jewellery valued at ₹1.46 crore at the family’s residence. The family explained that the jewellery had accumulated over generations and included gold inherited by the father, jewellery received at weddings and gifts given during family ceremonies.

The assessing officer accepted 2,250 grams of jewellery for nine family members, applying the quantities referred to in CBDT Instruction No. 1916, dated 11 May 1994, and a CBDT press release issued on 1 December 2016.