Big Relief on Unexplained Cash & Jewellery: Key Tax Insights & Takeaways for Every Taxpayer

 Big Relief on Unexplained Cash & Jewellery: Key Tax Insights & Takeaways for Every Taxpayer

 Introduction

The Income Tax Appellate Tribunal (ITAT) Jaipur Bench recently ruled on an appeal filed by Ajay Data against the order of the Commissioner of Income Tax(Appeals) [CIT(A)], Jaipur-4. This case pertains to unexplained cash and jewellery found during an income tax search under Section 132 of the Income Tax Act, 1961. The ruling, issued on January 7, 2025, sets a significant precedent regarding how unexplained income is assessed.

Case Background

Facts of the Case

• A search and seizure operation was conducted on the Data Group, Alwar, on October 14, 2015.
• Unexplained cash of Rs. 15,97,510/- and gold jewellery weighing 7,181.73 grams were found.
• Ajay Data filed his return of income on March 24, 2017, declaring an income of Rs. 19,26,220/-.
• The Assessing Officer (AO) assessed a total income of Rs. 52,04,899/-, including additions for unexplained cash and jewellery.
• CIT(A) partially deleted and enhanced certain additions.

Key Issues in the Appeal

1. Addition of Rs. 4,28,830/- as Unexplained Cash

• The AO did not allow set-off of this cash against cash withdrawals of Rs. 4,72,000/- made between April 2014 and April 2015.
• CIT(A) held that the assessee failed to explain why cash was withdrawn despite previous withdrawals.
• ITAT observed that no law prohibits an assessee from keeping cash in hand and held that the AO’s assumptions were not based on evidence.
• Verdict: Addition of Rs. 4,28,830/- deleted.

2. Addition of Rs. 21,02,279/- as Undisclosed Jewellery under Section 69A

Assessee’s Arguments:

• The jewellery was inherited and gifted.
• Valuation reports, affidavits, and other supporting documents were submitted.
• The assessee’s family lived in a joint family system, and jewellery was collectively owned.
• CBDT Instruction No. 1916 allows a reasonable quantity of jewellery to be exempted from unexplained additions.

Tribunal’s Observations:

• The jewellery found from different family members’ rooms and lockers should be considered collectively.
• No evidence of undisclosed purchase of jewellery was found.
• Affidavits and past declarations were ignored by AO and CIT(A).
• Verdict: Addition of Rs. 21,02,279/- deleted.

3. Enhancement of Rs. 17,33,800/- (638.13 grams of Jewellery)

• CIT(A) enhanced the assessee’s income based on incorrect calculations.
• The total gold jewellery found was 3,861.80 grams, but unexplained jewellery was wrongly calculated.
• The jewellery belonging to the assessee’s wife, Nidhi Data, was wrongly added to his taxable income.
• Verdict: Enhancement of Rs. 17,33,800/- deleted.

4. Addition of Rs. 11,20,505/- for Silver Articles

• The AO added silver utensils found during the search as unexplained.
• The assessee submitted that these items were family-owned and customary.
• ITAT ruled that no evidence of recent silver purchases was found, making the addition unwarranted.
• Verdict: Addition of Rs. 11,20,505/- deleted.

Final Decision

The ITAT ruled in favor of the assessee, deleting all major additions made by AO and CIT(A), reinforcing that mere assumptions cannot justify income tax additions.

Summary Table of Additions and Deletions

Sl. No	Particulars	Amount Added	ITAT Decision
1	Unexplained Cash	Rs. 4,28,830/-	Deleted
2	Unexplained Jewellery (Gold)	Rs. 21,02,279/-	Deleted
3	Enhancement (Gold)	Rs. 17,33,800/-	Deleted
4	Unexplained Silver Articles	Rs. 11,20,505/-	Deleted
Total	Rs. 54,85,414/-	Deleted

Key Takeaways for Taxpayers

1. Proper Documentation is Crucial – Affidavits, valuation reports, and past declarations play a vital role in justifying the ownership of assets.
2. Joint Family Assets Should be Considered Collectively – If jewellery is inherited and collectively owned, individual taxation may not apply.
3. Cash Withdrawals Should be Clearly Tracked – Having clear withdrawal records strengthens the explanation against unexplained cash additions.
4. CBDT Instructions Matter – ITAT reaffirmed the applicability of CBDT Instruction No. 1916, which allows a certain quantity of jewellery as reasonable.
5. Tax Authorities Must Rely on Evidence, Not Assumptions – The case highlights the importance of substantial proof in tax assessments.

Conclusion

This case underscores the importance of accurate assessment, proper documentation, and legal compliance. The ITAT ruling reaffirms that tax authorities must base additions on solid evidence, not assumptions. This decision is a significant win for taxpayers facing arbitrary tax additions due to unexplained income claims

Read More: Delhi High Court’s Verdict on GST Appeal Limitations: No Extension Beyond the Statutory Period