The Karnataka High Court, in Sri C. Ramaiah Reddy v. Deputy Commissioner of Income Tax, Central Circle-2(2), Bangalore, examined whether an addition for unexplained investment in jewellery could be sustained for Assessment Year 2011-12 when the jewellery was found during a search conducted on 5 July 2011. The judgment, delivered on 16 July 2026, clarifies the assessment year in which an addition under Section 69B of the Income-tax Act, 1961 may be made.
The assessee was subjected to a search and seizure action under Section 132 of the Income-tax Act on 5 July 2011. During the search proceedings, the assessee offered ₹50 lakh in respect of jewellery found at his premises. However, based on the departmental valuation report, the Assessing Officer made an additional amount of ₹6,74,320 as unexplained investment in jewellery while completing the assessment under Sections 143(3) and 153A for Assessment Year 2011-12.
The Commissioner of Income Tax (Appeals) dismissed the assessee’s appeal. The Income Tax Appellate Tribunal partly allowed the subsequent appeal but sustained the addition of ₹6,74,320. The assessee therefore approached the Karnataka High Court under Section 260A of the Income-tax Act.
Income Tax: Addition Must Relate to the Year in Which Jewellery Is Found
The principal issue before the High Court was whether the addition under Section 69B could legally be sustained for Assessment Year 2011-12 when the jewellery had been found during the search conducted on 5 July 2011.
The Court observed that Section 69B applies where the Assessing Officer finds that an assessee has made investments or is the owner of money, bullion, jewellery or another valuable article, and the amount invested exceeds the amount recorded in the books of account. The excess amount may be deemed to be the assessee’s income for the financial year in which the investment was made or the valuable article was found.
Since the jewellery was found on 5 July 2011, the assessment year corresponding to the date of search was Assessment Year 2012-13. The Court held that once the Assessing Officer chose not to accept the assessee’s declaration under Section 132(4) and instead made a separate addition based on the valuation report by invoking Section 69B, the addition, if otherwise warranted, could only have been made for Assessment Year 2012-13.
Accordingly, the High Court held that the Tribunal was not justified in sustaining the addition of ₹6,74,320 for Assessment Year 2011-12. The relevant substantial question of law was answered in favour of the assessee and against the Revenue.
The High Court set aside the Tribunal’s order to the extent that it sustained the disputed addition and directed that the addition made under Section 69B for Assessment Year 2011-12 be deleted. The questions concerning the jurisdiction of the assessment under Sections 143(3) and 153A and the validity of the search were not pressed by the assessee and were therefore left open.
Why Read This Judgment?
This judgment is relevant for advocates, Chartered Accountants, Company Secretaries, tax consultants, corporate tax teams and taxpayers dealing with search assessments and additions relating to jewellery or other valuable articles. It highlights that an addition under Section 69B must be linked to the financial year in which the investment is made or the valuable article is found. The ruling also demonstrates the importance of selecting the legally correct assessment year while making additions based on material discovered during search proceedings.
