The Income Tax Appellate Tribunal has clarified that when assessing unexplained gold under Section 69A of the Income Tax Act, the valuation must be based on the assessee’s actual cost of acquisition, not the higher market or customs-declared value. This decision reinforces the principle that tax liability must reflect economic reality, not speculative or procedural valuations.
The Verdict
The assessee won on the issue of valuation. The Income Tax Appellate Tribunal held that unexplained gold under Section 69A must be valued at the assessee’s actual cost price of Rs. 3,788 per gram, not the higher rate of Rs. 4,000 per gram adopted by the Commissioner (Appeals). The Tribunal restricted the addition to the difference in weight (381.12 grams) and directed the Assessing Officer to recalculate the addition using the correct cost-based rate. This sets a binding precedent for valuation methodology in unexplained asset cases.
Background & Facts
The assessee, an individual earning salary and interest income, declared total income of Rs. 95,95,890 for AY 2022-23. She reported jewellery worth Rs. 1,09,84,800, a significant increase from Rs. 31,74,600 declared in AY 2021-22. The Assessing Officer treated the difference of Rs. 78,10,200 as unexplained income under Section 69A, citing a customs export certificate from Dubai showing gold valued at Rs. 1,21,57,980 for 3,124.94 grams.
The assessee contended that the increase was due to gold gifted by her father over multiple years, supported by purchase bills and a sworn affidavit from her father. She submitted bills totaling Rs. 72,54,731 for gifted jewellery and Rs. 31,74,600 for self-purchased jewellery. The Commissioner (Appeals) partially allowed the appeal, accepting the gift claims but restricting the addition to 381.12 grams of unexplained gold, valued at Rs. 4,000 per gram.
The assessee appealed further, challenging the valuation rate, arguing that the customs value reflected market price, not cost. She provided evidence that her total gold purchases over the years amounted to 3,415.533 grams at an average cost of Rs. 3,788 per gram. The Revenue defended the Rs. 4,000 rate as conservative and aligned with customs declaration.
The Legal Issue
The central question was whether the value of unexplained gold under Section 69A of the Income Tax Act must be determined based on the market or customs-declared value, or whether it must reflect the actual cost incurred by the assessee for acquisition.
Arguments Presented
For the Petitioner
The assessee argued that Section 69A is a deeming provision, not a penalty provision, and requires valuation based on the actual cost of acquisition, not speculative market rates. She cited her purchase bills and father’s affidavit to establish the cost basis of the gifted jewellery. She emphasized that customs valuation includes stones, setting, and market premiums, which are irrelevant to determining taxable unexplained income. The Tribunal’s own observation that her average cost was Rs. 3,788 per gram validated her position.
For the Respondent
The Revenue contended that the customs-declared value of Rs. 1,21,57,980 for 3,124.94 grams provided a reliable benchmark for market value. It argued that the Rs. 4,000 per gram rate adopted by the Commissioner (Appeals) was a reasonable, conservative estimate and that the assessee had failed to prove the exact cost of the unexplained portion. The Revenue maintained that the burden of proof lay with the assessee to establish a lower value, which she had not done conclusively.
The Court's Analysis
The Tribunal rejected the Revenue’s reliance on customs valuation as determinative. It noted that customs authorities assess gross weight including gemstones and craftsmanship, which inflate value beyond the intrinsic gold content. The Tribunal emphasized that Section 69A seeks to tax unexplained wealth, not to penalize based on inflated declarations made for border control purposes.
"The assessee has furnished purchase bills for gold acquired over several years, totalling 3,415.533 grams at a total cost of Rs. 1,29,39,519, yielding an average cost of Rs. 3,788 per gram. This is the actual economic cost borne by the assessee and must form the basis of valuation under Section 69A."
The Tribunal accepted the weight difference of 381.12 grams identified by the Commissioner (Appeals) as the unexplained portion, but held that applying Rs. 4,000 per gram was arbitrary and unsupported by evidence. It found that the cost-based rate of Rs. 3,788 per gram was demonstrably accurate and derived from the assessee’s own transaction records. The Tribunal further noted that the assessee had consistently disclosed jewellery since AY 2019-20, undermining any allegation of concealment.
The Tribunal distinguished this case from precedents where no documentation existed, noting that here, the assessee had provided contemporaneous, verifiable purchase records and a sworn affidavit from the donor. The Tribunal concluded that the burden of proof under Section 69A is not absolute but shifts only after the department establishes a prima facie case, which was met by the customs declaration. However, once the assessee provides credible evidence of cost, the valuation must reflect that cost.
What This Means For Similar Cases
This judgment establishes a critical precedent for valuation of unexplained assets under Section 69A. Practitioners must now argue that any addition must be calculated using the assessee’s actual cost of acquisition, supported by bills, bank records, or donor affidavits. Customs or market rates cannot be mechanically applied unless the assessee fails to provide credible cost evidence.
The ruling also reinforces that the burden of proof under Section 69A is not a one-time burden on the assessee. Once the department raises a prima facie case, the assessee must provide a reasonable explanation with supporting documents. If those documents establish cost, the valuation must follow that cost, not an external benchmark.
This decision will impact cases involving unexplained jewellery, bullion, or other assets where market and cost values diverge. Tax officers must now justify deviations from cost-based valuation with clear reasoning. Practitioners should advise clients to maintain detailed purchase records and donor affidavits for gifts, especially for high-value items.
The Tribunal’s reliance on average cost per gram, derived from total expenditure divided by total weight, provides a replicable methodology for future cases. This approach ensures fairness and aligns tax liability with economic reality.
