2017 (9) TMI 473 - AT - Income Tax

Determining any unexplained jewellery in the hands of the appellant - circular no. 1916 - non-granting of relief as per CBDT Circular in respect of the jewellery belonging to the married female - Held that - CIT (A) has not given any reason for denying the benefit/set off to the extent of 250 gms in case of Aditi Mishra and Aanchal Mishra (minor grand-daughters) and partly allowing the benefit to the extent of 250 gms to Smt. Roshni Mishra. We find that the case of the assessee is covered by the CBDT Circular No. 1916 dated 11.05.1994 whereby the CBDT had issued guidelines stating that In the case of a person not assessed to wealth-tax gold jewellery and ornaments to the extent of 500 gms per married lady, 250 gms per unmarried lady and 100 gms per male member of the family need not be seized. Therefore, following the above guidelines and also judgment of Hon ble Jurisdictional High Court in the case of Satya Narain Patni (2014 (5) TMI 1002 - RAJASTHAN HIGH COURT) we direct the AO to allow gold jewellery weighing 250 gms (500gms 250 gms allowed by CIT (A) in the hands of Roshni Mishra (daughter-in-law), 250 gms. each in the hands of Aditi Mishra and Aanchal Mishra (minor grand-daughter) - Decided in favour of assessee. Disallowance of interest expense - Held that - The assessee was having sufficient own funds as reflected in the capital account of the assessee as on 31.03.2008 so as to make investment for purchase of shares of other companies and generate exempt income. See CIT vs. Vijay Solvex Ltd. 2014 (12) TMI 1191 - RAJASTHAN HIGH COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-granting of relief as per CBDT Circular in respect of jewellery belonging to married female.
2. Disallowance of interest expense of ?10,56,769/-.

Issue-wise Detailed Analysis:

1. Non-granting of relief as per CBDT Circular in respect of jewellery belonging to married female:

The assessee contested that the learned CIT (A), Central, Jaipur erred by not allowing full relief for unexplained jewellery as per CBDT Circular No. 1916. The appellant argued that the jewellery found should be exempted based on the circular, which permits 500 grams for a married lady and 250 grams for an unmarried lady without questioning the source. The appellant highlighted that Smt. Roshni Mishra, a married lady, should be credited with 500 grams of jewellery, and the minor children should also be considered for the exemption. The appellant cited the CBDT Circular No. 1916 and the judgment of the Hon'ble Jurisdictional High Court in the case of Satya Narain Patni, which supports the exemption limits specified in the circular.

The Tribunal noted that the CIT (A) did not provide reasoning for denying the full benefit to Smt. Roshni Mishra and the minor grand-daughters, Aditi Mishra and Aanchal Mishra. It was observed that the case is covered by the CBDT Circular No. 1916 dated 11.05.1994, which allows specific exemptions for gold jewellery. Following the guidelines and the judgment in Satya Narain Patni, the Tribunal directed the AO to allow the exemption of 250 grams for each minor grand-daughter and 500 grams for Smt. Roshni Mishra, thus allowing the grounds of the assessee.

2. Disallowance of interest expense of ?10,56,769/-:

The assessee argued that the disallowance of interest expense was unjustified as the investments were made through personal books and not the proprietorship concern, Surya Properties and Investments. The appellant emphasized that the capital account had sufficient funds to cover the investments, and the interest expense on the loan taken for such investments was ?1,30,061/-. The appellant relied on various judicial pronouncements, including the Bombay High Court's decision in Reliance Utilities & Power Ltd., which presumes that investments are made from interest-free funds if such funds are available.

The Tribunal reviewed the submissions and found that the assessee had sufficient own funds to make the investments. The reliance on various High Court judgments, including the Jurisdictional High Court in CIT vs. Vijay Solvex Ltd., supported the appellant's contention that no notional interest could be disallowed if the assessee had sufficient own funds. The Tribunal concluded that the CIT (A) erred in confirming the disallowance and directed the AO to allow the interest expenses, thus allowing the grounds of the assessee.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to provide the exemptions for jewellery as per CBDT Circular No. 1916 and to allow the interest expenses, thereby quashing the order of the CIT (A). The judgment was pronounced in the open court on 05.09.2017.