ITAT Deletes Additions On Long Term Capital Gains On The Purported, Notional, Fictitious Sale Of Jewellery

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the income tax addition on account of long-term capital gains on the purported, notional, and fictitious sale of jewellery.

The Bench of Yogesh Kumar US (Judicial Member) and B. R. R. Kumar (Accountant Member) has observed that there is no provision in the Income Tax Act to deem the difference between the value of the jewellery declared in the Wealth Tax Return and the value of the jewellery found in the search, in case the jewellery falls short of the amount or quantity declared in the Wealth Tax Return (WTR).

A search and seizure operation under Section 132 of the Income Tax Act, 1961, was conducted in the Priyagold Group of cases on December 16, 2014, by the Investigation Wing, New Delhi. The assessee has received income under the heading ‘Income from salary’ from M/s Surya Food & Agro Ltd. and also income from other sources as interest from a savings bank account.

The total jewellery as per the Wealth Tax Return of the assessee and the wife of the assessee was Rs. 2,17,56,423. During the search, total jewellery of Rs. 43,17,442 was found. Out of the jewellery found worth Rs. 43,17,442, jewelry amounting to Rs. 16,77,363 was seized owing to a mismatch in the description of the jewellery.

Owing to the non-availability of the remaining jewellery, the Assessing Officer calculated long-term capital gains on the presumption that the jewellery "undetected" during the search was sold and determined an LTCG of Rs. 71,86,743/-.

The issue raised was whether the AO could resort to a determination of notional LTCG or not.

The shortage of jewelry could have been questioned at the time of the search, and any evidence with regard to the sale of jewellery should be collected during the search or post-search inquiry.

The assessee submitted that the loose diamonds that were part of the wealth tax return were studded in the jewellery subsequently, and that was the reason that the description of the jewellery was different.

The ITAT held that the jewelry seized of Rs. 16,77,363/- is interpolated in the jewelry found of Rs. 43,17,442. No additions can be made to the entire disclosed jewellery as per the WTR and as discovered on the premises.

Case Title: Ballabh Prasad Aggarwal Versus ACIT

Case No.: ITA No. 2351/Del/2019

Date: 17.05.2023

Counsel For Appellant: Ved Jain

Counsel For Respondent: P. Praveen Sidharth

Click Here To Read The Order