₹16 lakh jewellery, ₹3.88 lakh cash treated as unexplained income; here’s why the taxpayer wins at ITAT Hyderabad

A search by the Income Tax Department at a taxpayer’s residence in November 2010 led to a tax dispute over cash and jewellery found there. The department treated Rs 3.88 lakh in cash and investment in jewellery valued at Rs 16.01 lakh as unexplained and added both the amounts to his taxable income.

Mr Chintakunta maintained that the cash was already reflected in his books of accounts and that the jewellery belonged to his family members, including his wife and children. The dispute went through multiple rounds of appeal and ended up being sent to the Hyderabad Income Tax Appellate Tribunal (ITAT) twice. On September 9, 2026, the tribunal ruled in his favour.

Why did the tax officer treat Rs 3.88 lakh in cash as unexplained?

The case relates to the assessment year 2011-12. During a search at Chintakunta’s residential premises on November 25, 2010, the Income Tax Department found cash and jewellery.

The tax officer treated Rs 3.88 lakh in cash found and seized during the search as unexplained, as the taxpayer had not satisfactorily established its source during the search and assessment proceedings.

According to CA (Dr.) Suresh Surana, the assessee argued that this amount was not unexplained because his books and balance sheet already showed cash in hand of Rs. 4.86 lakh as on 31 March 2011.

Since the recorded cash balance was higher than the cash actually found during the search, the assessee contended that the seized cash was fully covered by the cash already reflected in his accounts.

The ITAT accepted this explanation. It observed that once the books showed sufficient cash in hand to cover the amount found during the search, there was no basis to treat Rs. 3.88 lakh as unexplained. The Tribunal therefore deleted the entire cash addition.

Thus, since the taxpayer’s regular books already disclosed adequate cash balance, the Department could not separately tax the same cash merely because it was physically found during a search, pointed out Surana.

Why did the tax officer add Rs 16.01 lakh for jewellery found during the search?

The second dispute was over the jewellery found at Chintakunta’s residence during the November 25, 2010 search.

According to Surana, the jewellery had a gross weight of 1,054.5 grams and a net weight of 807.5 grams, which was valued at Rs. 16,01,975.

The assessee explained that the jewellery belonged to his family members, including his wife and other family members, and had been received over time as gifts on different family occasions.

He also relied on CBDT Instruction No. 1916 dated 11 May 1994, under which certain quantities of jewellery are treated as reasonable, having regard to normal family holdings.

The Assessing Officer rejected this explanation on the ground that the assessee had not produced detailed evidence showing exactly when and how much jewellery had been received by way of gift, explains Surana.

The AO also took the view that CBDT Instruction No. 1916 was relevant only for deciding whether jewellery should be seized during a search, and not for deciding whether the jewellery represented unexplained investment. On that basis, the entire value of Rs. 16.01 lakh was added as unexplained investment.

How did CBDT Instruction No. 1916 help the taxpayer get relief?

Before the ITAT, the assessee argued that the jewellery belonged to the wife, daughter, the taxpayer himself and his son, and that the total quantity was within the reasonable limits recognised in CBDT Instruction No. 1916.

He also relied on earlier judicial decisions where courts and tribunals had treated jewellery within such customary limits as satisfactorily explained in the absence of contrary evidence.

According to Surana, the Tribunal accepted this position. It noted that the total net jewellery found was 807.5 grams, and that the quantity was below the aggregate reasonable limit available having regard to the family members.

It also followed earlier decisions, including C.M. Gopal v. DCIT, where similar relief had been granted by applying CBDT Instruction No. 1916. The ITAT therefore held that no addition was called for in case of jewellery and deleted the Rs. 16.01 lakh unexplained-investment addition in full.

Thus, search-related additions should still be tested against the surrounding facts and available records.

In the case of cash, the taxpayer’s own books showed sufficient cash balance, and so the amount found could not be treated as unexplained. In the case of jewellery, the quantity found was within the reasonable family-holding limits recognised by CBDT Instruction No. 1916 and supported by judicial precedent.

The Tribunal therefore found no basis to sustain either addition. Accordingly, the ITAT allowed the assessee’s appeal and deleted both the Rs. 3.88 lakh cash addition and the Rs. 16.01 lakh jewellery addition.

Why was this the second round of appeal before ITAT?

The dispute had already gone through an earlier round of litigation. The ITAT had previously sent the matter back to the Commissioner of Income Tax (Appeals) [CIT(A)] to decide the appeals relating to the protective and substantive assessments together.

The CIT(A) subsequently deleted the capital-gains addition but upheld the additions relating to unexplained cash and jewellery.

Chintakunta challenged the latter decision before the ITAT again. In its September 2026 order, the tribunal examined the merits of both additions and ruled in his favour.

What does this ruling mean for taxpayers?

For the taxpayers, this ruling clarifies that gold jewellery found during a search, within the limits prescribed under CBDT Instruction No. 1916, shall not be seized and may also be treated as explained during assessment, says Ashish Goel, Partner, Ved Jain and Associates.

Maintaining available records of purchases, gifts, inheritance and ownership would help substantiate their position. The acceptability of an explanation would ultimately depend on the facts, supporting material and applicable judicial precedents in each case, says Surana.