A Nagpur-based chartered accountant whose home was searched by the Income Tax Department was found to have 2.434 kg of jewellery valued at ?90.59 lakh. Of this, jewellery weighing 1.314 kg and valued at ?33.33 lakh was seized.

Yet, the Income Tax Appellate Tribunal (ITAT), Nagpur Bench, has deleted the remaining tax addition on the disputed jewellery, holding that ownership, source, family circumstances and the nature of the jewellery had to be considered before treating it as unexplained.

The ruling came in the case of Nirmal Kumar Agrawal v. ACIT, Central Circle-2(1), Nagpur, ITA No. 530/Nag/2025, pronounced on 10 August. The search was conducted on 26 July 2016. Agrawal, a practising chartered accountant and partner in S N J & Associates, was also covered in the search.

Tax Department initially made ?50 lakh addition

During the search, 2,434 grams of jewellery worth ?90.59 lakh and ? 7.06 lakh in cash were found. The tax officer seized jewellery weighing 1,314 grams and ?5 lakh in cash.

The Assessing Officer subsequently made a ?50 lakh addition under Section 69A of the Income-tax Act, treating it as unexplained money. The taxpayer challenged the addition.

The Commissioner of Income Tax (Appeals), however, granted substantial relief and eventually sustained an addition of ?3.86 lakh relating to four jewellery items with a gross weight of 158 grams and a net weight of 104.70 grams, including diamond and precious-stone jewellery.

The taxpayer then approached the ITAT.

Jewellery belonged partly to his wife

One of the Tribunal's key findings was that jewellery found at a common residence cannot automatically be treated as belonging to the person whose premises are searched.

Two disputed items, weighing 55.8 grams and valued at ?2.58 lakh, were claimed by Agrawal's wife. According to the explanation submitted before the tax authorities, she had received the jewellery from her parents on the birth of their two daughters.

The valuation report also recorded these items in her name.

The ITAT accepted the explanation, observing that such gifts on important family occasions were customary. It held that where ownership of jewellery is identifiable and belongs to another family member, it cannot be treated as an unexplained investment in the taxpayer's hands merely because it was found at the family's common residence. The Tribunal also noted that the search produced no evidence that Agrawal had invested in these items.

Only 48.9 grams of his jewellery remained unexplained

The Tribunal then examined jewellery that Agrawal himself owned.

His total jewellery was stated to be 121.5 grams. Of this, 72.6 grams had been purchased through banking channels between 2008 and 2011 and were recorded in his books.

That left only 48.9 grams for consideration.

The Tribunal found this quantity reasonable, taking into account that Agrawal was 41 years old, had been married for 15 years, had two daughters and was a practising chartered accountant. It also considered his family circumstances, social status and customary practices.

The 48.9 grams was below the 100-gram limit for a male family member under CBDT Instruction No. 1916. The Tribunal treated the limit as relevant in assessing whether the jewellery was reasonably explained.

What the ruling means for taxpayers

The ruling does not mean that taxpayers can automatically keep any quantity of gold jewellery at home without questions from the tax department.

Rather, the Tribunal's decision highlights the importance of ownership and source. Jewellery belonging to different family members should be identifiable, while purchases should ideally be supported by invoices, bank records and books of account. Gifts and inherited jewellery may also require a credible explanation of their origin.

The Tribunal further held that CBDT Instruction No. 1916 is relevant as a benchmark for reasonable jewellery possession, but the facts and circumstances of each case remain important.

Separately, the ITAT ruled that the enhanced 60% tax rate under Section 115BBE could not be applied to Agrawal because the search took place on 26 July 2016, before the enhanced rate became applicable. The Tribunal held that the enhanced rate operated prospectively.