A married daughter keeping her wedding jewellery at her parents’ home cannot, by itself, be a reason for an income tax addition. The Income Tax Appellate Tribunal (ITAT), Delhi, has deleted Rs 1.13 crore in tax additions after accepting a taxpayer’s explanation that the jewellery found at his residence belonged to his late wife and three married daughters and had been received as wedding gifts.
The tribunal noted that the family had submitted affidavits confirming the gifts, along with wedding photographs and bank statements. It also held that the Income Tax Department could not make an addition based on an assumed value of the jewellery when it had not been properly valued.
Why did the Income Tax Department make the addition?
The case relates to assessment year 2019-20. During a search by the National Investigation Agency (NIA) at the taxpayer’s residence in January 2019, officials found cash of Rs 21 lakh and jewellery weighing around 3.9 kg.
The Income Tax Department subsequently reopened the assessment, questioning how the taxpayer could possess these assets when he had declared an income of Rs 10.45 lakh for the relevant assessment year.
The Assessing Officer (AO) treated 2.3 kg of jewellery, valued at Rs 92 lakh, as unexplained investment under Section 69 of the Income-tax Act, 1961. The officer had allowed relief for 1.6 kg of jewellery but rejected the explanation that the remaining ornaments belonged to the taxpayer’s late wife and three married daughters.
The AO also treated Rs 21 lakh in cash as unexplained money under Section 69A, questioning the family’s explanation that the amount came from bank withdrawals. The Commissioner of Income Tax (Appeals) upheld both additions, following which the taxpayer approached the tribunal.
What did the ITAT say about married daughters’ jewellery?
The taxpayer submitted affidavits from his daughters’ in-laws confirming that the jewellery had been gifted during their marriages. Wedding photographs showing the ornaments were also produced. The family submitted bank statements to support its explanation that the daughters regularly visited their parental home.
The tribunal observed that keeping married daughters’ jewellery at their maternal home was consistent with customary practices and was not prohibited by law. It also noted that the jewellery had been seized by the NIA, not the Income Tax Department, and had been weighed but not valued.
“As a matter of fact the ld. CIT(A) has not considered the status of the family, the circular of the Board where in case of married ladies 500 gms. and in case of unmarried lady 250 gms. and in case of male member 100 gms. jewellery need not be seized. The Income-tax department has accordingly released the said jewellery. The assessee, in fact can possessed upto 1450 gms. of jewellery as per the circular and looking to the social and financial status of the family, CBDT Circular I am of the view that the jewellery possessed by the assessee is quite reasonable and no addition on this account can be made and additions so sustained by the ld. CIT(A) is directed to be deleted,” ITAT said in order.
Why was the Rs 21 lakh cash addition also deleted?
The tribunal also examined the family’s explanation for the cash found during the search. The taxpayer had submitted bank statements showing withdrawals by family members during the relevant period.
It noted that the family’s documented withdrawals exceeded the Rs 21 lakh found during the search. After considering the records, the tribunal held that there was no reason to sustain the cash addition.
The tribunal allowed the appeal and directed the deletion of both additions, totalling Rs 1.13 crore.
“Because the source was traceable. The family had withdrawn far more than Rs 21 lakh from its bank accounts in the months before the search, and the statements were on record. The AO’s view that withdrawals must have been spent on the household was an assumption, not evidence,” an tax expert said.
What documents should families maintain to prove jewellery ownership?
Another tax expert said families should maintain the following documents to establish jewellery ownership:
- Gift deeds or recitals: Documents showing that the jewellery was gifted to the daughter, such as during her wedding as stree-dhan.
- Purchase invoices: Original bills in the name of the daughter or the person who gifted the jewellery.
- Wealth tax records: Although wealth tax has been abolished, historical records or references in previous disclosure schemes can serve as evidence.
- Valuation reports: Certified reports from registered valuers describing the jewellery items.
- Wills or succession certificates: Documents establishing inheritance from ancestors.
“An officer checks whether the jewellery is recorded in the books of account, if books are maintained. Evidence of income levels in preceding years can also be produced to show the financial capacity to acquire such jewellery,” he said.
