How Much GOLD I Can Hold as per Income Tax Act?

If we talk about the Gold, it is a favourite article of possession particularly about ladies in India.  People purchase gold for a variety of reasons such as for auspicious occasions or for the fond of wearing ornaments or for buying gold for daughter/son’s marriage in future. On the other hand, gold also seems to be a favourite investment option for capital appreciation for many people given the fact that there is no restriction on how much gold an individual can hold. Here, gold includes not only jewellery but includes also gold coins, gold bars, and other forms. You may be asked several questions on investment in gold.

All these questions assume importance given the government’s recent thrust on tracking unaccounted monies and investments.  

In this article we will discuss the various issues in detail on the following topics:

1. Source of Investment in Gold
2. What is the permissible quantity of gold under IT law?
3. What is the valid proof for possession of Gold?
4. Guidelines issued by the CBDT on possession of Gold 
5. Powers of Income Tax Department u/s 132 of Income Tax Act  
6. Illustration, showing manner of calculation of excess jewellery found  during search operation by the Department  
7. Taxation of excess jewellery ( unexplained investment )
8. Landmark judgement ( judicial pronouncement )

The purpose of this article is to make aware about all the possible benefit available to the searched person(s) in respect of jewellery found during the course of search.

1. Source of Investment in Gold

While buying gold, it is necessary that you should buy gold on proper invoices and retain your tax invoices for future requirement. You need not worry if you can explain the source of investment in gold. The Central Board of Direct Taxes (CBDT) has specified in its press release, dated 1 December 2016 that there is no limit on holding gold jewellery provided that the source of investment or inheritance can be explained. However, it is essential that the income of the assessee is in line with the quantity of gold held. Providing necessary proof for such possession will help in avoiding scrutiny from the income tax department. Otherwise, the assessing officer also holds the authority to confiscate the gold held.

2. Permissible Quantity of Holding of Gold

CBDT has clarified the prescribed quantity of gold considered as allowable. Gold within this limit will not be seized even at the time of search at the assessee’s premises. No proof is required for possession and investment for the below mentioned quantity of Gold.

Even a higher quantity of gold may be left unseized by the discretion of assessing officer based on the family customs and traditions etc. It is important to note that the limits prescribed above apply only to jewellery held by members of the family. In the case of jewellery found belonging to any other person, the same can be seized and confiscated.

The quantity mentioned above is applicable to individual taxpayers. When it comes to a single locker having jewels from multiple families, the limit will be an aggregate of each individual taxpayer. In this case, it is recommended to open joint locker accounts with the names of the taxpayers from each family. This way you can avoid confusion.

3. What type of document/proof is valid?

Proof of investment will help you in establishing the source of the investment in Gold. Apart from the tax invoices that you would keep, you may have to provide evidences in case of inheritance and gifts. In the case of inheritance or gift, it will be great if you can provide a receipt in the name of the initial owner of the item. Alternatively, you can also submit a family settlement deed, will, or a gift deed stating the transfer of such a commodity to you. On the other hand, if there is no such document available, the officer will analyse your family’s social status, customs, and traditions to come to a conclusion on whether your statement is valid or not.

4. Powers of Income Tax Department u/s 132 of IT Act

Section 132 of the Act confers the highest power to the income tax department (‘Department’) to invade the privacy of a person. As per this section, a search and seizure action can be carried out, in the case of any person who is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed or would not be disclosed for the purpose of the Act. The department has the power to seize any such money, bullion, jewellery or other valuable article if found unexplained at the time of the search.

The power of the authorised officer to seize jewellery during the course of search is derived from clause (iii) of  Section 132 (1), which reads that the Authorized Officer should seize any such books of account, other documents, money, bullion, jewellery, or other valuable article or thing found as a result of such search. However, as per the proviso to the said clause, any bullion, jewellery or other valuable article or thing, being stock-in-trade of the business, found as a result of such search shall not be seized but the authorised officer shall make a note or inventory of such stock-in-trade of the business. It is pertinent to note that the seizure of jewellery mainly depends upon two situations:

1. when an assessee has disclosed such jewellery in a wealth tax return
2. when the assessee has not disclosed such jewellery in wealth tax return

      If during the course of search action, jewellery is seized either from the residential premises or from the bank locker, in many such cases, searched person(s) are not aware of the benefits available to them under the Act, which is explained through the CBDT guidelines and the various judicial pronouncement of high courts as given here under:

5.Guidelines issued by the CBDT vide Instruction No. 1916 dated 11^th May 1994

In the matter of seizure of jewellery as per the said guidelines, CBDT has laid down instances as to when jewellery found need not be seized. Such instances are as under:

1. In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need to be seized.
2. In the case of a person not assessed to wealth-tax ,gold jewellery and ornaments to the extent of 500 gms. per married lady, 250 gms per unmarried lady and 100 gms. per male member of the family, need not be seized.
3. The authorized officer may be having regard to the status of the family and the customs and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income-tax/Commissioner authorizing the search at the time of furnishing the search report.           

Summary of CBDT Guidelines:

No seizure of gold jewellery found during the course of the search, should be made by the Authorised Officer, when,

(a) Searched person has disclosed jewellery in its wealth tax return,
 
(b) Where the jewellery is within the prescribed limit i.e. 500 grams for married lady, 250 gram for unmarried lady and 100 grams for male members.

(c)   Authorised Officer may exclude a larger quantity of jewellery from seizure having regards to status and customs of community to which they belong.

(d) It is pertinent to note that CBDT has laid down guidelines for the ‘seizure’ of the jewellery found during the course of the search. However, it has been in various judicial pronouncement, discussed below, that although CBDT instruction is a guideline for not carrying out seizure during the course of the search, it inter-alia indicates the intention that the jewellery to the extent specified in instruction should be treated as explained jewellery in the hand of the searched person.

6.Illustration showing manner of computation of permissible limit of Gold jewellery as per CBDT guidelines

A search was carried in the premises of Mr XYZ at his residence and the bank lockers on 1st April 2018. Gold jewellery of 1494 grams was found from his residence/lockers. In the assessment completed u/s 143(3), the Assessing Officer did not accept the explanation of the assessee in respect of 394 grams of jewellery and the value thereof amounting to Rs.10,00,000/-(fictitious figure) was added by him to the total income of the assessee.In his family he has his wife and three children (a daughter, Ms Kanti and 2 sons Mr Swetang & Patang )].

Now, as per the CBDT Instruction No. 1916, the Jewellery that is allowed and that cannot be seized is as follows:

Thus, the total of 394 grams of gold jewellery can be said to be beyond the permissible limit given by the CBDT circular no 1914.  If the assessee does not provide the explanation for the same then the same will be taxable as an unexplained investment and taxed accordingly as per section 69B of The Income Tax Act, 1961 at the rate specified in section 115BBE of the Income Tax Act, 1961(discussed below).

7.  Tax calculation u/s 115 BBE

8.  Judicial Pronouncements interpreting CBDT’s guideline on the seizure of jewellery (Landmark judgements ):

8.1 Jewellery to the extent specified in the CBDT instruction stood explained

Hon’ble Courts, on the number of occasions, have interpreted the aforesaid CBDT Instruction, to hold that the source of purchase of jewellery found from searched person to the extent of specified in the said instruction stood explained and therefore can’t be treated as an undisclosed investment.

• Gujarat High court in the case of CIT v. Ratanlal Vyaparilal Jain (2011) 339 ITR 351 has held that even though the circular had been issued for the purpose of non-seizure of jewellery during the course of the search, the basis for the same recognizes customs prevailing in Hindu society. It is up to the Revenue to show anything to the contrary or else, it can safely be presumed that the source to the extent of the jewellery stated in the circular stands explained.
• Surat ITAT in the case of SMT. Kasturben m. Pithavadiwala in ITA No 70 to 72/AHD/2017 dated 11/02/2020
• Allahabad High court in the case of Commissioner of Income-tax, (Central), Kanpur vs. Ghanshyam Das Johri [2014] 41 taxmann.com 295  
• Rajasthan High court in the case of Commissioner of Income-tax, Alwar vs. Satya Narain Patni [2014] 366 I
• Rameshchandra R. Patel [2004] 89 ITD 203, Hon’ble ITAT Ahmedabad Bench ™

8.2 Jewellery found higher than the CBDT Instruction No 1916 Excess Jewellery Keeping in mind the high status and customary practices prevailing in one’s community various courts have held that EXCESS JEWELLERY (more than the prescribed limit as per clause (ii) of Board’s Instruction) found during the course of the search will not be considered as unexplained as per the clause (iii) of the Instruction. It has been held that married ladies receiving jewellery in the form of ‘stree dhan’ during their long married life on various occasion like the birth of child, birthdays, marriage anniversaries, etc., and accumulated over a period of years are to be excluded.

(a) Delhi High court in the case of Ashok Chaddha [2011] 14 taxmann.com 57  wherein the Hon’ble High Court has accepted the jewellery of 906.90 grams in the case of married lady even without documentary evidence. The court stated that collecting jewellery of 906.90 grams by a woman in the married life of 25-30 years is not abnormal. The court has held that it is a normal custom for a woman to receive jewellery in the form of “stree dhan” or on other occasions such as the birth of a child etc.

(b) HYDERABAD  ITAT  in the case of R. Umamaheswar v. Deputy Commissioner of Income-tax [2015] 38 ITR(T) 790 has held that the gold jewellery in excess of what is specified in the instruction, found during the course of search can reasonably be treated as explained, being the streedhan of the Assessee’s wife, having been received by her on the occasion of marriage as well as subsequent occasions over the period. 

(c ) ITAT DELHI BENCH ‘A’ in the case of Vibhu Aggarwal v. Deputy Commissioner of Income-tax, CC-06, New Delhi [2018] 93 taxmann.com 275  has held that where gifting of jewellery possessed by each of family members was customary and jewellery was gifted to Assessee and his wife by their parents and grandparents and other relatives at the time of their marriage, and also on several occasions after that, such as the birth of their two children, marriage anniversaries, etc., excess jewellery found was nominal, keeping in mind high status and more customary practices and stands explained.

(d) Delhi ITAT in case of Radha Mital and Ruchie Mital Vs. DCIT in ITA No: 2810/Del/2016 dated 09/07/2016 held that Jewellery found in excess of limitation prescribed by the above circular as explained on the ground that jewellery belongs to the assessees having received as “streedhan” on the occasion of marriage and also received subsequently on occasions like birth of child etc in pursuant to customs/tradition of the family. The Assessee belonging to ‘ Baniya’ family have been married for 35 years and 8 years. Further, they were jointly residing with their mother in law Shanti Mittal who had been married for about 65 years. Apart from the above the family comprised of the husband of both the assessee and son. Thus looking to the tradition of family Hon’ble Tribunal has accepted the Jewellery in excess of the limit prescribed by the above circular was in view of the fact that the same being received as Streedhan during the course of Marriage and subsequent to marriage

It is also pertinent to consider the decision of Hon’ble Madras High Court in the case of V.G.P. Ravidas.v. ACIT  (2015) 370 ITR 364 and V.G.Selvaraj.v. ACIT  (2015) 370 ITR 364 wherein it is held that the CBDT Instruction enables Assessing Officer to exclude a larger quantity of jewellery and ornaments from seizure, only if there are circumstances to come to the conclusion that status of family and custom and practices of the community require holding of such jewellery. If Assessee does not offer any such explanation, the instruction will not be applicable and excess jewellery may be seized and considered as an unexplained investment.

• Several Other Important Issues/ judgements of the Courts

1. Whether seizure is possible when the gross weight of jewellery disclosed in regular returns is in excess of the gross weight of jewellery found in search?

Mumbai ITAT in the case of Mrs Nawaz Singhania DCIT [2017]   has held that where the gross weight of jewellery disclosed by family in their regular returns was in excess of the gross weight of jewellery found in search, no seizure was possible and, thus, no addition to income would consequently be permissible. It has also been pointed out that the jewellery may be frequently converted into different design depending on the needs and status of the family as well as customs and practices of the community and therefore, comparison of the item to item may not be possible with the weight disclosed in regular returns.Following Nawaz Singhania’s decision (supra), ITAT CHANDIGARH in the case of Shri Rakesh Bansal, VS The Asstt. CIT, Central Circle-II, CHANDIGARH 2020 (1) TMI 982 has held that no addition is called for when total gold jewellery available with the Assessee as shown in the Wealth Tax Return and obtained on the maturity of Gold Bond Scheme which is more than the gold Jewellery weighing found during the course of search

1. Whether the source of jewellery found being part of the ancestral / inheritance jewellery attained through WILL, needs to be proved? – Yes.

In case of jewellery is claimed to be as per WILL, the Assessee has to provide corroborative evidence substantiating that WILL executed prior to the search. In the matter of ancestral / inheritance jewellery, the assessee has to provide a copy of the will to substantiate jewellery in possession. In the case where the Jewellery is received by Assessee in inheritance then such jewellery should be considered to have been explained. In such a situation it can be argued that the term “person” contained in the circular CBDT Instruction No. 1916  would refer not only to living member of the family but also deceased members. Thus the jewellery of such deceased which according to Hindu Traditions is kept safe with legal heir/inheritor should be considered as explained. Thus no adverse inference should be taken in case the jewellery is received by the person searched by way of inheritance.           

1. Whether Diamond Jewellery or Gold Bar (Bullion) found during the course of search can be included within the prescribed limit as stipulated in Board’s Instruction? – No.

     The prescribed limit in Clause (ii) of CBDT Instruction No. 1916 dated 11th May 1994, specifically deals with gold jewellery and ornaments. Therefore, the benefit of instruction is not available in respect of diamond studded in the gold jewellery or diamond jewellery. Similarly, the benefit of instruction is also not available in respect of Gold Bar (Bullion) or gold coins found during the course of search. However, if it is substantiated that such gold bar or coin was made by melting old jewellery and source of such jewellery is explained along with the remaking bill then it will be considered as explained.

      However the dispute may arise as to whether the diamond-studded in the gold jewellery will be covered as per the CBDT Instruction No. 1916 dated 11th May 1994. It can be argued that the gold jewellery found from the persons searched if covered within the permissible limits prescribed as per CBDT Instruction No.1916 then the diamond-studded in such gold jewellery will be given benefit on the ground that such diamond jewellery is equated with the gold jewellery. The diamond jewellery included in the gross weight of the jewellery found from the persons seared if covered within the limit prescribed by the above circular then no adverse xi view should be taken against Assessee. Delhi ITAT in the case of Kumkum Kanodia Versus DCIT vide ITA No: 5260/Del/2014 dated 20/11/2018 observed that merely because the jewellery is studded with the diamond of 47.18 carat in the instant case, the same cannot be added in the hands of the assessee when such jewellery formed part of the gross weight of the jewellery found from the premises of the assessee which is within the permissible limits prescribed as per CBDT Instruction No.1916 dated 11th April 1994.

1. Indore ITAT in case of SHRI DINKAR LAXMAN MUJUMDAR Vs. DCIT in  ITA No: 593/Ind/2017 dated 18/10/2018 has allowed the benefit of the above circular to the silver article found during the course of search considering the customs of the Indian culture.
2. Whether credit for jewellery prescribed as per CBDT Instruction is over and above the purchased Jewellery reflecting in books of account of the Assessee? – Yes.
              
   Recently, JAIPUR ITAT in the case of Ram Prakash Mahawar v. Deputy Commissioner of Income-tax, Central Circle Alvar [2020] 115 taxmann.com 241 has observed that the CBDT Instruction No. 1916 allows the specific quantity as reasonable and stands explained, which, indeed does not includes the jewellery which is otherwise explained by proof of documents of acquisition as well as declared/recorded in the books of account of the Assessee. Therefore, the benefit of said Instruction would not take away the benefit of the jewellery acquired and reflected in books of account of the Assessee.
3. In which year, the addition of unexplained jewellery should be made?

Section 69A provides that where in any financial year, an assessee is found to be the owner of any jewellery which is not recorded in the books of account and the explanation offered by assessee about the nature and source of acquisition is not satisfactory, then the value of such jewellery would be deemed to be the income of the assessee in the year in which the assessee was found to be the owner of the jewellery. Meaning thereby, in terms of section 69A, Assessee would be treated in possession of jewellery, when jewellery was found and seized by revenue, and would be taxed as an unexplained investment in the year in which it was found i.e. mostly in the year of search.

• Whether application to release the seized jewellery can be made? – Yes.

If during the course of the search, any jewellery or ornaments seized by the authorised officer, then in view of the proviso to section 132B(1) of the Act, an application to the assessing officer shall be made within thirty days from the end of the month in which the asset was seized. In the said application for release of seized jewellery, Assessee has to explain the nature and source of jewellery and other valuables found during the course of search to the satisfaction of the Assessing Officer.

 Sum up

• On careful considerations of the instruction and few of the above discussed judgments, we can conclude that the intention of CBDT in issuing the said instruction is that jewellery to the extent specified in the CBDT instruction should be treated as explained and not as unexplained investments.
• Further, the department has also opined that the size and status of the family and also considering the normal customs to which the family belongs, the Authorized Officer may exclude larger quantities of gold and ornaments from seizure.  
• Further, if during the course of the search, any jewellery is found from the possession of the Assessee, then he has to explain such jewellery to the satisfaction of the authorised officer with proper documentary evidence. Further, Legitimate holding of jewellery up to any extent is fully protected.
• It is worthwhile to mention here that generally bank locker is opened either in the name of a lady member or jointly with a lady member of the family. In such cases, to operate the bank locker, a warrant u/s 132 is required and due to issuance of a search warrant in the name of a lady member, assessment of six assessment years u/s 153A shall be re-opened. In other words because of the issuance of warrant u/s 132 of the Act, to operate the said bank locker, lady member would require to face notices for six years assessment years u/s 153A. In case, if such locker is opened only in the name of male members, and jewellery found from such locker partly or fully belong to any lady member then such lady member may face proceeding u/s 153C of the Act. In such case notice for specific years and not for all 6 assessment years will be issued.           
• The necessary facts relating to gold ornaments, how the same are acquired by family etc, whether such gold is acquired through gift or inheritance etc need to be mentioned in the statement recorded u/s 132(4) of the Act as such statement carried weight and has more evidentiary value in search proceedings as well as subsequent assessment proceedings. In some cases, it is observed that jewellery found from the locker of a person/from the room of a person, actually belong to another family member of the group. In such cases, the proper facts should be brought out in the statements recorded during and in post search proceedings mentioning the name of the person to whom said jewellery actually belong to and if require, necessary affidavits may be filed.
• Keeping in view of the guidelines issued by the CBDT Instruction No. 1916 dated 11^th May 1994 for seizure and subsequent judicial pronouncements by various higher authorities interpreting the instruction, one may take the benefits of it to explain the excess jewellery found during the course of search, keeping in mind the facts and circumstances of the case . 

Also Read: CBDT notifies new Income Tax Return Forms for AY 2021-22 [Read Notification]

Author can be reached at deepakjauhari@powergridindia.com

CA Deepak Jauhari, FCA

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CA. Deepak Jauhari

CA Deepak Jauhari is Fellow Chartered Accountant currently working as Sr. General Manager, Power Grid Corporation of India Limited (A Maharatna PSU). He has 30+Years of experience in various capacities including Direct and Indirect Tax Matters.

He is the Author of Three Books (Two in GST and recently one on Investment and Financial Planning titled as “Mantra of Financial Freedom”). Several articles penned down by Mr Deepak have been published on Direct and Indirect tax matter and Investment planning in the website of Clearmytax.in , Tax Guru and in the ICAI Journal. He also is a Regular speaker in the CPE study circle of ICAI