Khazana Jewellery’s 268kg gold stock case: Madras High Court directs income tax settlement commission to reconsider settlement plea

The Madras High Court has directed the Income Tax Settlement Commission to reconsider Khazana Jewellery’s settlement application with respect to 268 kg of gold stock held by its employees, goldsmiths and agents but had not been disclosed voluntarily for the purpose of paying income tax in 2016.

First Division Bench of Chief Justice Manindra Mohan Shrivastava and Justice G. Arul Murugan set aside the settlement commission’s June 2020 rejection order and directed it to reconsider the request afresh since otherwise the jewellery firm would have to pay penalty, interest and face prosecution too.

The direction was issued while allowing a writ appeal filed by the jewellery firm, represented by its Managing Director Kishore Kumar Jain, against a single judge’s November 28, 2025 order refusing to interfere with the settlement commission’s decision on the ground that there was no full and true disclosure.

Income Tax department senior standing counsel A.P. Srinivas brought it to the notice of the court that Khazana Jewellery Private Limited was a closely held company based in Chennai. Mr. Jain was the Managing Director and his family members were the other directors of the company.

In April 2016, the I-T sleuths carried out a search operation during which Mr. Jain admitted to have inflated the refinery loss, siphoned off the excess gold and sold it in black market. He also gave a statement that the amount earned due to inflation of the refinery loss was around ₹70.66 crore in the last six years.

Subsequently, in 2018, he filed a settlement application with respect to ₹70.66 crore and also for an additional income of ₹80 crore towards towards 268 kg of bullion held by its employees, goldsmiths and agents. He offered to pay income tax for them at the rate of 30% by classifying them as business income.

The Settlement Commission accept the application with respect to ₹70.66 crore since the source of earning such an income through inflation of refinery loss had been disclosed. It, however, rejected the settlement plea with respect to ₹80 crore by stating that there was no full and true disclosure.

During the hearing of its writ petition before the single judge, the jewellery firm had offered to pay even 60% tax under Sections 69B and 115BBE of the Income Tax Act, 1961 but Mr. Srinivas said, such an offer ought to have been made before the settlement commission and not before the court.

However, while hearing the writ appeal against the single judge’s order, the Bench led by the Chief Justice held that the settlement commission had not considered the jewellery firm’s application properly and therefore, the issue required reconsideration.