Recently, there was a case in the ITAT Mumbai where the Income Tax Department conducted a search operation in a lady’s residential house and her bank lockers and seized her diamonds, gold and silver items and jewellery and held them as unexplained.
In aggregate, the search yielded gold jewellery weighing 427.71 grams, pure gold weighing 258 grams, diamond jewellery containing a gold component of 161.33 grams, and silver-mix articles weighing 11.200 kg.
When asked about the source of funds for these items, she explained that these assets had accumulated over several decades through marriage gifts, streedhan, inheritance, customary family gifts and purchases. She had been married for more than 35 years and also furnished details showing that the family's aggregate gross total income over the five relevant assessment years was approximately Rs 4.55 crore.
The Income Tax Assessing Officer (AO) partly accepted her explanation and cited CBDT Instruction No. 1916, which says that for gold jewellery, the tax law provides indicative benchmarks of 500 grams for a married woman, 250 grams for an unmarried woman and 100 grams for a male family member for purposes of seizure during an income-tax search.
Ultimately, she fully won the case in ITAT Mumbai.
ITAT Mumbai ruled that it inconsistent to accept ordinary gold jewellery and diamond-studded gold jewellery forming part of the same family holding, but treat the pure gold as unexplained solely because of its physical form. ITAT Mumbai also said that mere absence of old purchase bills was not considered conclusive where her explanation was based on marriage gifts, inheritance and accumulation over several decades.
ITAT Mumbai also said that CBDT Instruction No. 1916 does not create an absolute tax exemption or statutory ceiling for jewellery holdings. Rather, the quantities specified in the Instruction provide a practical benchmark for assessing whether family possession of jewellery can reasonably be accepted as explained.
However, ITAT Mumbai expressly clarified, however, that its ruling on pure gold was confined to the particular facts and should not be read as laying down a general proposition that all gold bullion or pure gold automatically falls within CBDT Instruction No. 1916.
How much pure silver and gold jewellery can you have in your home without getting into trouble with the Income Tax authorities?
Chartered Accountant Suresh Surana says that there is no statutory ceiling on the amount of gold or silver that a person may keep at home or in a bank locker.
Surana says: “Any quantity may be possessed, provided its acquisition is lawful, and the person can satisfactorily explain its source.”
According to Surana, for gold jewellery, CBDT Instruction No. 1916 provides indicative benchmarks of 500 grams for a married woman, 250 grams for an unmarried woman and 100 grams for a male family member for purposes of seizure during an income-tax search.
Surana says: “These limits should not be regarded as absolute tax-free ownership thresholds as the judicial authorities may still require explanations for their source.”
For silver articles, no specific quantitative benchmark has been expressly prescribed under the said Instruction. Surana says that in the ITAT Mumbai case the tax tribunal accepted 11.2 kg of silver-mix articles after considering her long period of marriage, customary accumulation, inheritance and the family’s financial standing.
This was, however, based on the particular facts of that case and should not be viewed as prescribing a general permissible limit for silver holdings.
Accordingly, Surana says that where substantial quantities of gold, silver or bullion are held, it would be prudent to maintain available documentation or other reasonable evidence supporting their purchase, inheritance, gifting or long-standing family ownership.