Income Tax Appellate Tribunal - Jaipur
Shalendra Kumar Sharma, Jaipur vs Dcit, Jaipur on 20 December, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ ITA No.374/JP/15
fu/kZkj.k o"kZ@Assessment Year : 2012-13
Dr. Shailendra Sharma,H-1, cuke The DCIT, Circle-1, Jaipur
Chitranjan Marg, C-Scheme , Vs.
Jaipur
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vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA)
jktLo dh vksj ls@ Revenue by : Smt. Pratima Kaushik (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 26.10.2016
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 20/12/2016.
vkns'k@ ORDER
PER SHRI VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A)-4, Jaipur dated 27.03.2015 wherein the assessee has taken following grounds of appeal:
(1) On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the disallowance to the extent of Rs. 41,075/-
on account of expenses claimed in profit and loss accounts as genuine business expenditure arbitrarily without appreciating the nature of expense being incurred on new vehicle purchased, which was used for professional purposes, which the disallowance upheld deserves to be deleted.
1.1 That the Ld. CIT(A) has further erred in ignoring the fact that both the cars are used in assessee profession and purchase of are for the purpose ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur of business and therefore the interest on such car loan deserves to be allowed as business expenditure/.
2. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding the disallowance of interest at Rs.1,25,912/- claimed as genuine business expenditure arbitrarily without appreciating the nature of loan taken, thus the disallowance uphold deserves to be deleted.
2.1 That the Ld. CIT(A) has further erred in ignoring the fact that the loan taken are for the purpose of profession and therefore the interest on such loan deserves to be allowed as business expenditure.
3. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining the addition of Rs. 54,50,075/- made by the ld. AO on account of jewellery alleged as unexplained arbitrarily, thus the addition of Rs. 54,50,075/- sustained deserves to be deleted 3.1 That the Ld. CIT(A) has further erred in confirming the action of AO of not allowing the credit for jewellery acquired on various occasions out of the funds available in fund-flow statement submitted before ld. AO based on which additional income was declared and accepted by ld. AO also, thus the addition sustained deserves to be deleted.
4. The ld. CIT(A) has further erred in not allowing credit of the jewellery by ignoring the terms of CBDT instructions dated 11.05.1994, reliance is 0laced on the decision of Hon'ble Karnataka High Court in the case of Pati Devi vs. ITO reported in 240 ITR 727 and the decision of jurisdictional Jaipur Bench of ITAT which are binding in nature, thus the consequent addition sustained without allowing such credit deserves to be deleted.
2. The brief facts of the case are that the appellant is an individual having income from Profession and interest income. A search operation u/s 132 of the Income Tax Act, 1961 was carried out at his residential premises on 08.06.2011 alongwith M/s Jaipur Hospital Group where he is providing professional services. In response to notice u/s 142(1), return of income was filed on 10.09.2013 declaring total income at 91,84,690/-. Thereafter, appellant revised its computation of income on 19.03.2014 declaring total income at 36,34,690 2 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur on the basis of cash/fund flow statement prepared by appellant. Thereafter, the assessment was completed u/s 143(3) r.w.s. 153A of the Income-Tax Act, 1961 at a total income of 1,00,53,560/- by making certain disallowances. Being aggrieved, the appellant carried the matter in appeal before the ld. CIT(A), wherein a part relief of Rs.8,01,799/- was granted. Now the appellant is before us against the additions confirmed by the ld. CIT(A).
2.1 In respect of Ground of Appeal No. 1 to 1.1, the ld. AR has submitted that the appellant had claimed depreciation of 6,37,500/- in the Income & Expenditure Account on the car purchased by appellant during the year under appeal and had since been used by him in the course / for the purpose of his profession. This car was purchased by him out of the funds raised by way of loan from Kotak Mahindra Bank amounting to 42.50 lacs and had paid an amount of 2, 05,374/- as interest on the said loan. Accordingly, appellant claimed deduction on account of interest expenses at 2, 05,374/-. However, the Ld. AO without doubting the genuineness of these expenditures, alleged that these expenses have been incurred for non-business purpose and arbitrarily disallowed the entire amount of expenditure at 8,42,874/- (Interest Rs. 2,05,374 + Depreciation Rs. 6,37,500) claimed by appellant on account of personal use.
The ld. CIT(A) deleted the entire disallowance of depreciation, and restricted the disallowance of interest expense claimed to Rs.41,025/- by observing that:
"there was no dispute on the fact that the assessee was not owning any independent vehicle other than the cars which are shown to be used for professional purpose.. However the personal element in use of such a car including expenditure incurred on interest payment cannot be ruled out and 3 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur therefore it would be fair and reasonable to disallow 20% of expenses on account of personal use."
At the outset, it is submitted that addition on account of interest on car loan was made, by the AO without referring to any incriminating material found as a result of search and disallowance was made solely for the sake of additions without appreciating that the expenses claimed on account of interest is the most genuine one.
Also, the ld.CIT(A) had failed to appreciate the fact that appellant had declared gross professional receipts at Rs. 82, 31,650/- out of which total expenses of Rs. 16,51,616/- were claimed which includes the expenses of Rs 41,075/- disallowed, though the professional income declared and the other expenses claimed are not doubted or nor it is established that usage of car is not for professional purposes.
Also, when the Ld. AO has not pointed out a single instance where the appellant had used his cars for any non-business use. It has been generally and presumptively observed that the new car may have been used for personal purposes as well. Merely because the appellant has not shown any independent vehicle, other than those shown as being used for the business purpose. It has been alleged in very casual manner that the appellant may have used his new car for personal purpose without any basis and without showing any single instance of such nature. It is trite law that the burden of proving something is on the person who alleges it. Therefore, the Ld. AO was duty-bound to prove his point and specify as to when the appellant's car was used for personal purpose.
4 ITA No. 374/JP/15Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur Thus, it is prayed that the additions sustained on the basis of such general / vague / presumptive observations deserve to be deleted, and the appellant prays accordingly.
2.2 In respect of Ground No. 1 to 1.1, the Ld. CIT(A) has given his findings as under:
"I have carefully considered the finding of the AO as also the submissions of the appellant. It may be noted that the AO has disallowed the expenditure incurred by way interest payment and depreciation on the new car mainly holding that there was no justification or requirement for another car in the professional work when the assessee already having one car. On the other hand the appellant's case is that such addition has been without any basis as also that the whole of such expenditure was incurred for the business purposes. The appellant also contended that the AO cannot question the commercial expediency of any expenditure claimed by the assessee and also that the AO has not pointed out a single instance where the assessee has used this car for any non business purposes. It was also contended that the Income Tax Act did not prescribe any limit to the number of vehicles which a person can own for the purpose of business or profession. The appellant has also placed reliance on certain decisions including decision of Hon. ITAT Jaipur wherein it has been held that depreciation being a statutory allowance cannot be restricted on the basis of personal use. On careful consideration of relevant facts it may be noted that AO has disallowed interest payment and depreciation on the new car amounting to Rs. 8,42,874/-. The AO's case is that the assessee was already having one another car therefore there was no justification for the second car and accordingly the whole claim of depreciation and interest paid on the loan raised for purchase of a car was disallowed. On the other hand the appellant has contended that even the second car was purchased for the professional requirement as also that the AO cannot determine the business expediency or the business requirement for owning one car or two car for such professional work. Alternatively it has also stated that the depreciation claimed cannot be disallowed and for such proposition reliance has been made on the decision of Jurisdictional ITAT in the case of ITO vs. M/s Triveni Farma, 35 TW 64 (ITAT, Jaipur Bench) as also 5 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur another decision of Hon'ble ITAT Mumbai in the case of Mukesh K. Shah vs. ITO 92, TTJ 1060 (Mumbai). It may be noted that there is nothing on record which may indicate that the second car was not used for professional purposes and there is no merit in the contention of the AO that when one car is already owned by assessee then there can be no justification for the another car. As regards the depreciation claim of Rs.6,37,500/- on such car, such claim being of statutory nature therefore no disallowance on account of personal use can be made in respect of depreciation claim as held by the Hon. ITAT in the case of M/s Triveni Farma (supra). The finding of the Hon. ITAT is contained in para 9 which is reproduced as under:
"We have considered her submissions and we are of the view that in the light of the admitted position that the car was used for the purpose of business, there was no reason why the statutory allowance should be restricted on the ground of possible personal use. The Hon. Mumbai Bench of the Tribunal in the case of Mukesh Kumar Shah vs. ITO 92 TTJ 1060(Mum.) has held depreciation being statutory allowance cannot be restricted on the basis of personal use. We , therefore , find no ground to interfere with the order of the CIT(A). The order of CIT(A) is confirmed and this appeal by the Revenue is dismissed".
Accordingly, the disallowance of depreciation of Rs. 6,37,500/- made by the AO is deleted. As regards remaining addition of Rs. 2,05,374/- on account of interest payment, there is no dispute on the fact that the assessee was not owning any independent vehicle other than the car which are shown for professional work. However, the personal element in use of such car including expenditure incurred on interest payment cannot be ruled out and therefore it will be fair and reasonable to disallow 20% of expenses on account of personal use. Accordingly expenses to the extent of Rs. 41,075/- being 2% of Rs. 205374/- is disallowed and addition to such an extent is confirmed. The appellant get relief of Rs. 8,01,799/-(8,42,874- 41075)."
2.3. We have heard the rival contentions and perused the material available on record. The interest payment on loan taken for purchase of car has been disallowed by the AO which has subsequently been reduced to 20% by the ld CIT(A) holding that personal use of the car cannot be ruled out. It is relevant to 6 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur note that the AO has disallowed the depreciation as well as interest on car loan however there is no disallowance made towards the running cost of the same car which as per AO was being used for personal purposes. There thus seems to be inconsistency in approach of the AO. Further, the ld CIT(A) has allowed the depreciation claim on the said car and restricted the disallowance in respect of 20% of interest cost and the basis of such 20% is unclear except that the ld CIT(A) has held the same to be fair and reasonable. In our view, there is clear a lack of finding that the car was used for personal purposes and in light of above, adhoc disallowances cannot be sustained in eye of law. Hence, the disallowance of Rs 41,075 is deleted and grounds of appeal of the assessee are allowed.
3.1 In respect of ground of Appeal No. 2 to 2.1, the ld. AR of the appellant has submitted that during the immediately preceding assessment year appellant had taken a personal loan of Rs 30 lacs on 24.01.2011 and out of this amount, advances were made by him to M/s Sharma East India Hospital & Medical Research Ltd. in terms of his professional / business relations with the said company wherein he is Managing Director and is rendering his services as a professional. It is an undoubted fact that the appellant is having professional / business relations with the said company and any advance made to such a business concern amounts to an advance made for business purpose and the interest paid on such loan remains allowable as deduction u/s 36(1)(iii). It is also a matter of fact that the entire amount of loan was repaid by appellant out of his income in equal monthly installments.
It was further submitted that each and every precise detail pertaining to the assessment was submitted before the Ld. AO as and when required and the appellant had cooperated with the Ld. AO at every point of time during the 7 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur course of assessment proceedings. In spite of this, the Ld. AO without considering the details so submitted and submissions made before him has very summarily observed that the use of loan for business / professional purpose is not explained and disallowed the interest paid thereon accordingly. The Ld. AO did not made proper enquiries in the matter and arbitrarily and in a very summary manner has disallowed the interest paid by appellant on the loan taken by him solely for the business purpose.
Ld. CIT(A), while addressing the issue, has alleged, that the appellant had not furnished complete details as to whether the full amount of Rs.30 lacs was advanced to the companies, where the appellant was the MD, also since interest paid on personal loan was not directly correlated with the professional income, such interest was not allowable, and confirmed the addition so made by the AO.
The appellant humbly submits that, managerial remuneration from the above companies have been offered as Income from business and profession (Rs.18 lacs), and therefore the interest expense of Rs. 1.25 lacs, against the said income is quite reasonable, and be allowed.
Therefore, the addition of Rs. 1,25,912/- made on account of disallowance of interest expenses incurred on the loan taken solely for business purposes deserves to be deleted and the appellant prays accordingly.
3.2 In respect of ground No. 2 to 2.1, the ld. CIT(A) has given his finding s as under:
"I have carefully considered the finding of the AO as also the submissions of the appellant. The appellant's case is that such personal loan 8 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur taken from HDFC was further advanced to M/s Sharma East India Hospital and Medical Research Ltd. in terms of his professional/business relation with the said company in which the appellant is a Managing Director and that advance to such business concern was to be treated for business purposes which can be claimed as deduction u/s 36(1)(iii) of IT Act. On consideration of all relevant facts, it may be noted that the assessee an individual and M/s Sharma East India Hospital and Medical Research Ltd. being a corporate entity are two different entities. Though it is fact that the appellant is Managing Director of M/s Sharma East India Medical & Research Ltd. but no proper justification as to how advancement of loan to this corporate entity was related to his individual professional business activities was furnished. Moreover, the appellant has also not filed complete details as to whether the full amount of Rs. 30 lacs was advanced to M/s Sharma East India Medical & Research Ltd. or only part of the amount was advanced. Further the interest incurred on personal loan availed from HDFC is not directly correlated with the professional income of the appellant and therefore in such circumstances the AO has rightly disallowed such claim of interest. Accordingly the action of the AO is confirmed."
3.3 We have heard the rival contentions and perused the material available on record. The contention of the appellant is that out of the personal loan of Rs 30 lacs taken from HDFC bank, certain amount was advanced to M/s Sharma East India Hospital & Medical Research Ltd. in terms of his professional / business relations with the said company wherein he is Managing Director and is rendering his services as a professional. It was submitted that the appellant is having professional / business relations with the said company and any advance made to such a business concern amounts to an advance made for business purpose and the interest paid on such loan remains allowable as deduction u/s 36(1)(iii). It is a well settled position that where the borrowed funds are advanced by an assessee to another other person, the same should be advanced by way of business expediency to be allowed as an allowable deduction under section 36(1)(iii) of the Act. In the instant case, the appellant 9 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur besides stating his relationship and association with M/s Sharma East India Hospital & Medical Research Ltd. has not brought any material on record to satisfy the test of business expediency. In light of same, the interest on funds borrowed which has been advanced to M/s Sharma East India Hospital & Medical Research Ltd. cannot be claimed as an allowable deduction. The matter is accordingly set-aside to the file of the AO to determine the amount of such disallowance. The ground of appeal is thus partly allowed.
4.1 In respect of ground of appeal No. 3 to 3.2, the AR of the appellant submitted that the brief facts pertaining to this ground of appeal are that, during the course of search conducted u/s 132 of Income Tax Act, 1961, total jewellery including gold jewellery weighing 3631.59 gms valued at Rs 76,50,000/- (APB 38-42) along with silver jewellery valued at Rs 4,52,015/-, total jewellery valued at Rs. 81,02,015/- was found out of which jewellery worth Rs 53.99 lacs (APB 38) was seized, in respect of which an admission was obtained from appellant towards undisclosed investment to the extent of jewellery worth Rs 40 lacs.
The detailed breakup of the jewellery found is as under:
S.No. Place Gross Net Wt. Value
Wt.
1. Locker No. 60 of Bank of 2679.920 2032.810 43,33,352.00 Rajasthan Ltd., M.I. Road, Jaipur (APB 39-40)
2. Bedroom of Smt. Maya Sharma 1512.740 1266.850 27,19,901.00 &Shailendra Sharma (H-1, Chitranjan Marg, C-Scheme, Jaipur) (APB 41-42)
3. Bedroom of Shri Ashwini Sharma 304.200 211.430 3,78,048.00 (H-1, Chitranjan Marg, C-Scheme, Jaipur)
4. Bedroom of Shri Karan Sharma 120.500 120.500 2,18,707.00 10 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur &Shivani Sharma (H-1, Chitranjan Marg, C-Scheme, Jaipur) Total 76,50,008.00 Out of the aforesaid jewellery so found the following jewellery has been seized by the Income Tax Department vide Annexure JS-1 page 1 of Panchnama dated 09.06.2011.
S.No. Place Gross Wt. Net Wt. Value
1. Locker No. 60 of Bank of 1867.420 1188.810 28,84,171.00 Rajasthan Ltd., M.I. Road, Jaipur (APB 38)
2. Bedroom of Smt. Maya Sharma 1419.960 1180.610 25,15,143.00 &Shailendra Sharma (H-1, Chitranjan Marg, C-Scheme, Jaipur) (APB 38) Total 53,99,314.00 In this regard, it is submitted that appellant is living along with his parents and the families of his two younger brothers also stayed with him and they live in a joint family at their residence at H-1, Chitranjan Marg, C-scheme, Jaipur which is owned by appellant's father. The jewellery belonging to / owned by this joint family was kept in the custody of the appellant, for the reason of his being the head of the family, and also in the bank locker for safety reasons. Such a practice is quite commonly prevalent in joint Hindu family wherein the head of the family is entrusted with the responsibility to keep the valuables such as jewellery etc with him. In the present case, the appellant i.e. Dr. Shailendra Sharma, being the eldest son, is head of the family given the fact that, his father due to old age was not able to look after the affairs of the joint family. Therefore, in his capacity as the head of the family, the custody of entire jewellery of all the members of the joint family was entrusted to him. With this background, it is humbly submitted that the AO and ld.CIT(A) has grossly erred 11 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur in not considering the facts of the case properly and further not allowing the benefit of CBDT Instruction No. 1916 dated 11.05.1994.
It is humbly submitted that, the family of the appellant consists of following members:
1. 6 male members, (Appellant's father, himself, two brothers, one son and one nephew)
2. 5 married ladies (Appellant's mother, wife, brother's wife-2, and daughter in law) and;
3. 4 unmarried ladies (one daughter and three niece).
It may kindly be appreciated that the CBDT vide Instruction No. 1916 dt. 11.05.94 has held certain quantity of jewellery as explained which is detailed as under:
1. Married Lady : 500 gms
2. Unmarried Lady : 150 gms
3. Male member : 100 gms The claim of Jewellery as explained as per CBDT instruction dated 11.05.1994 has been approved by the Hon'ble Karnataka High Court in the case of Pati Devi Vs. ITO reported in 240 ITR 727. The Hon'ble Rajasthan High Court has also taken the view that no addition could be made to the extent of the jewellery covered by the above stated instructions issued by CBDT in this regard in the case of CIT Vs. Kailash Chand Sharma reported in 146 Taxman 376 more particularly when no wealth tax returns were filed, the observations of the Hon'ble Court are as under:
"Section 69 of the Income Tax Act, 1961 - Unexplained investments - Block assessment period 1988-89 to 1998-99 - During search and seizure operation conducted at residential 12 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur premises of appellant, Assessing Officer found jewellery in possession of appellant and his family members - Assessing Officer after allowing credit of jewellery declared by ladies in their respective wealth - tax returns had taxed remaining jewellery as unexplained jewellery in hands of appellant and added its value as unexplained investment - On appeal, Commissioner (Appeals) after giving benefit of CBDT instructions dated 11.05.1994 held that appellant and his family members were entitled to further exemption of gold jewellery - He further held that remaining jewellery were undisclosed investment and addition to that extent was retained as income from undisclosed sources - On further appeal, appellant contended that two ladies had been wealth tax appellants up to assessment year 1985-86 only and had declared the jewellery and ornaments up to that time in their wealth tax return and later on they received some gold ornaments on occasion of marriage of brother of wife of appellant and some were partly acquired out of both ladies were assessed to wealth tax much prior to block period and they were not assessed to wealth tax at time of search and in view of status of appellant and his family members and in view of CBDT instruction No. 1916 dated 11.05.1994, deleted the addition - Whether Tribunal was justified - Held, Yes."
Further reliance is placed on the following decisions:
1. 45 DTR 290 CIT Vs. Ratanlal Vyaparilal Jain (Guj.) Search and seizure - Block assessment - Computation of undisclosed income - Seizure of Jewellery - Instruction No. 1916, dt. 11th May, 1992 which lays down guidelines for seizure of jewellery and ornaments in the course of search takes into account the quantity of jewellery which would generally be held by the family members of an appellant - Though the said circular has been issued for the purpose of laying down guidelines for seizure of jewellery, unless anything contrary is shown, it can be safely presumed that the source to the extent of the jewellery stated in the circular stands explained - Hence, Tribunal committed no legal error in treating the extent of jewellery specified in the said circular to be a reasonable quantity and in deleting addition on that basis.
2. 11 DTR 169 CIT V/S M.S. Agrawal (HUF) 13 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur The Hon'ble ITAT, Jaipur bench is regularly following the above stated decisions and holding the Jewellery to the extent covered by the CBDT instruction dt. 11.5.1994 as explained.
Thus, the following quantity of jewllery should be treated as explained:
1. Jewellery belonging to 6 male members : 100 x 6 = 600 gms
2. Jewellery belonging to 5 married ladies :500 x 5 = 2500 gms
3. Jewellery belonging to 4 unmarried ladies :150 x 4 = 600 gms Total = 3700 gms Thus, it can be seen that, in view of the aforesaid binding instruction of the CBDT, 3700 gms of jewellery remains explained in the case of appellant, and the jewllery found during the course of search was weighing 3631.59 gms only which is lower than the quantity considered as explained i.e. 3700 gms.
As submitted above, appellant is living with the families of his two brothers and they also have children staying with them; and it is customary in the Hindu family to receive gifts of Jewellery from the parents / relatives on various occasions such as marriages and other social ceremonies which fact cannot be denied. Besides this, father of the appellant, Shri Ganpat Rai Sharma is also a retired Government officer (IAS) and a reputed person and the fact of acquisition of Jewellery by him also cannot be denied. However, the ld.CIT(A), confimed the action of the AO by ignoring the fact of joint family has allowed the benefit of CBDT instructions for appellant, his wife and his unmarried daughter only, and no credit for the other family members was given based on the statement of one of the brother and no reason for not allowing credit for the remaining family members which includes his parents and family of other brother is given.
14 ITA No. 374/JP/15Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur It is submitted that, even in the event it is held that, the jewellery belonging to the two brothers and their family, is to be excluded from the total jewellery found with the appellant, the relief for jewellery belonging to his parents and daughter-in-law, (in addition to the relief given for the appellant, his wife and unmarried daughter), ought to be given, in light of the fact that the appellant is the eldest son, head of the family, and that he has been staying in a joint family. Thus, a further relief of [500+150+150], total 800 gms ought to be given, and the appellant prays accordingly It is submitted that credit for Jewellery acquired by appellant and his family members at the time of their marriages and other social functions which were solemnized in the family deserves to be held as explained.
Besides this appellant has declared investment in the acquisition of jewellery to the extent of Rs. 40.00 lacs as against which a sum of Rs. 4,14,139/- were declared in the fund flow statement for AY 2011-12 (APB-43) and a sum of 15,10,000/-(APB -15) was also declared for Ay 2012-13 and shown the same as the application of funds which is part of the total disclosure of undisclosed income made by the appellant. Further from the perusal of the fund flow statement (APB-15) your honours would observe that fund of Rs. 20,34,751/- remained available with the appellant on which the taxes have already been paid, and since no other investment representing such fund were found during the course of search, the benefit of telescoping of same should be given out of the jewellery alleged as unexplained, if any.
With regard to the allegation of the Ld. AO that the disclosure made in the fund flow statement with regard to the acquisition of jewellery is not reflected in the paper itself, it is submitted that the Ld. AO on the one hand has 15 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur accepted the disclosure made and on the other hand has created doubts about its application where no reference is made with regard to the payment made and under these circumstances the version of the appellant should be accepted as no other evidence is available on record or brought by making independent enquiries to hold that such sum was not utilized for the acquisition of jewellery. Further the Ld. AO has also ignored the documents found during the course of search with respect the acquisition of jewellery and were duly incorporated in the fund flow statements, thus the action of the Ld. AO of not accepting the part of the disclosure which is not suited to him is against the cardinal principal of law. In this regard reliance is placed on the following case laws:
• 253 ITR 454 Glass Lines Equipments Co. Ltd. V/s CIT (Guj.) Interpretation of documents - Documents must be read as a whole. It is a well settled canon of interpretation that a document has to be read as a whole" it is not permissible to accept a part and ignore the rest of the document.
• 22 TW 684Hissaria Brothers V/s ACIT (Jpr.) • Held that the seized document has to be read in its entirety and the parties are not allowed to read only that part which is suitable to it.
• 21 Tax World 213 Lal Chand Agarwal V/s ACIT In no case AO can be allowed to consider a part of a particular document as true being favourable revenue and other part of the very document as false since that is favourable to appellant - Duality of the approach of AO is not fair -
• 66 TTJ 508 Usha Tripathi Vs ACIT (ALL-B) Search and seizure - Block assessment- Computation of undisclosed income- when the receipts in a document are per se considered as income without any further evidence, expenses recorded against those receipts should also be considered at their face value and allowed deduction in computing undisclosed income 16 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur It is thus submitted that out of the total jewellery found at RS. 76.50 lacs appellant has already declared the undisclosed investment in acquisition of jewellery valuing at Rs. 19,24,139/- and included the same in the fund flow statement as Application of funds and further the balance of Fund flow statement at Rs. 20,34,751/- also available for telescoping and balance is duly covered with the CBDT instructions as submitted above, thus the entire addition of Rs. 54,50,075/- deserves to be deleted and the appellant prays accordingly.
4.2 In respect of ground No. 3 to 3.2, the ld. CIT(A) has given his findings as under:
"I have carefully considered the finding of the AO as also the submissions of the appellant. The appellant's case is that the assessee should be given benefit of CBDT's circular dated 11.05.1994 vide which as per the appellant the jewellery to the extent of 500 grms per married lady, 100 grms per male member, 150 gms per unmarried female member has to be considered as o f explained nature. For such proposition of law the appellant has also placed reliance on various case laws as mentioned in the written submission including decision of Hon. Jurisdictional ITAT. As per the appellant the family consisted of 6 male members, 5 married ladies and 4 unmarried ladies and that if credit is given as per CBDT's circular dated 11.05.1994 then the total jewellery found weighing 3631.59 grams is to be considered as of explained nature. The appellant has contended that the assessee was living with the families of his two brothers, their children and it was customary in the Hindu Family who received gifts of jewellery from the parents/relative as various occasions such as marriages sand other social ceremonies. As the appellant's father Shri Ganpat Rai Sharma was also residing with the assessee and that the acquisition of jewellery by his father can also not be denied. The appellant further contended that the assessee has filed return of income subsequent to the search on the basis of fund flow statement and whatever unaccounted income/receipt as well as expenditure incurred by the assessee were considered by preparing such fund flow statement. As per such fund flow statement the assessee was having funds of Rs/. 20,34,751/- in A.Y. 2012-13 available with the assessee on which tax has 17 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur already been paid and that when no other investment were found during the course of search, the benefit of telescoping should be given and jewellery to the extent of Rs.20,34,751/- should be considered to be of explained nature. The appellant also contended that the AO has accepted the disclosure of income on the basis of fund flow statement and that when income is accepted its application should not be disputed and credit should have been given for such availability of funds amounting to Rs.20,34,751/-. On the other hand the AO's case is that against the seizure of gold and silver ornaments/items etc. The assessee has accepted undisclosed investment of Rs. 40 lakhs and remaining amount of jewellery was to be explained during the assessment proceedings. However, while filing the return of income even the undisclosed investment of Rs. 40 lacs was not disclosed in the return of income. As per AO the CBDT's circular dated 11.05.1994 was only regarding the quantum of seizure of jewellery etc. at the time of search and that it cannot be a basis for claiming the genuineness of jewellery or to explain the unaccounted jewellery found and seized. The AO also noted that no such claim was made during the course of search or the post search proceedings as also that the jewellery found from different members was inventoried separately and there was nothing on record that the jewellery of other family members was in the possession of the appellant. Accordingly the AO allowed the credit of 750 grms jewellery on account of assessee, his wife and his unmarried daughter and out of total jewellery weighing 3299.66 grms, jewellery to the extent of 750 grms was treated to be of explained nature and remaining jewellery weighing 2549.66 grams valued for Rs. 54,50,075/- was taxed as undisclosed investment/income. In this connection it may be noted that the CBDT has issued instruction dated 11.05.1994 which was mainly in connection with seizure of jewellery found at the time of search, however, subsequently various courts while interpreting the CBDT's instruction has held that jewellery to the extent of quantity mentioned in such instruction dated 11.05.1994 should ordinarily be treated to be of explained nature. Reference is made to the following decision of the Hon. Courts.
a) CIT vs. Ratanlal Vyaparilal Jain 45 DTR 290 (Guj)
b) Smt. Patidevi vs. ITO 240 ITR 727 (Kar)
c) CIT vs. Kailash Chand Sharma 146 Taxman 376 (Raj.) 18 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur However, in this connection it may be mentioned that even as per the decision of Hon. Courts the credit of jewellery to such an extent in the hands of the individual member can be given only when the jewellery to such an extent was found from their possession. In this background in the appellant's case it may be noted that the jewellery has mainly been found from bank locker and bedroom of the assessee. It may be noted that during the course of search statement of the assessee was recorded and he has been confronted on the jewellery found from different premises. Such statement being question and answer No. 35 is also reproduced in the assessment order in page No.6 and in response to such question the appellant has stated that the gold and silver jewellery/items found from residence as well as in his locker were pertained to the assessee, his wife Smt. Maya Sharma, son Shri Karan Sharma, daughter in law Smt. Shiwani Khanna and daughter Smt. Radhika Sharma. In the same statement the assessee has stated that the jewellery pertaining to Shri Karan Sharma i.e. son and his family was mentioned at serial No.5 of the inventory weighing 120.50 grms. It may be noted that admittedly in the jewellery found during the course of search no jewellery pertaining to his father or mother was claimed. Even the jewellery in respect of son Shri Karan Sharma and his wife was only admitted for 120.50 grms .
Similarly, in such jewellery found from residence and bank locker no jewellery of his brother and his family was claimed. Therefore, it is incorrect to claim at the time of appellate proceedings or at the time of assessment proceedings that the jewellery found from the residence and bank locker also contained jewellery of his brother and his family as well as his father. It may also be noted that the jewellery found from brother of the assessee namely Shri Ashwani Shrma was inventoried separately and such jewellery was only for 304.200 grms. Similarly the jewellery found from bedroom of Shri Karan Sharma and Shiwani Sharma weighing 120.500 grms was also inventoried separately . It may also be noted that even the other family members during the course of search has not made any such submission either owning jewellery in excess of 500 grms or claiming that their personal jewellery was kept either in bank locker of the assessee or in the main bedroom of the assessee. Therefore prima facie making of such claim that the jewellery owned by other family members was kept in the locker and in bedroom is simply an afterthought to avoid proper payment of tax. This fact is further supported from the fact that even during the course of search the assessee admitted undisclosed investment of Rs. 40 lakh on account of jewellery found during the course of search. The above facts will indicate 19 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur that the the family members for whom the credit of jewellery is being asked as per CBDT's instructions were not having possession of jewellery to such n extent. It may further be noted as the jewellery in excess of CBDT's instruction was found only in possession of the assessee and the AO has already given credit to the assessee as per the CBDT's circular. As regards the another contention of the appellant that credit for availability of cash amounting to Rs.20,34,751/- as per the fund flow statement should be given to the assessee in as much as such cash was available and availability of cash is even not disputed by the AO as also that even the disclosure of income in earlier A.Ys. as well as in the A.Y. under consideration is made on the basis of such fund flow statement, it may be mentioned that the fact of availability of funds amounting to Rs. 20,34,751/- on the basis of fund flow statement cannot be disputed. However, there is no direct evidence which may indicate that such available cash was utilised only for the purpose of purchasing of jewellery. Even during the assessment proceedings the assessee has not made any such submission. The possibility of utilization of such available funds for any other purposes including for incurring of expenses etc. cannot be allowed. In other words, the benefit of telescoping can be given only when there is a direct evidence that the available money was only utilised for the purposes being claimed by the assessee. Keeping in view these facts the submission of the assessee cannot be accepted and the same appears to be simply an afterthought to evade proper payment of tax in respect of undisclosed investment. Accordingly, the addition made by the AO is confirmed."
4.3 The ld CIT DR is heard who has vehemently argued the matter. She submitted that benefit of CBDT instruction dated 11.05.1994 cannot be given to the appellant as the same is restricted to seizure of jewellery and not to the determination of source of investment in such jewellery and treating the same as explained. Further, she submitted that in any case, the benefit of said instruction cannot be given in respect of appellant's brother family in view of their categorical statement recorded during the course of search and seizure.
20 ITA No. 374/JP/15Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur 4.4 We have heard the rival contentions and perused the material available on record. Regarding the first contention of the appellant, it would be relevant to refer to the CBDT instruction on which reliance has been placed and also how the Courts have interpreted the said instruction.
4.5 We refer to CBDT Instruction no. 1916 dated 11-05-1994 which reads as under:
"Guidelines for seizure of jewellery and ornaments in course of search Instances of seizure of jewellery of small quantity in course of operations under section 132 have come to the notice of the Board. The question of a common approach to situations where search parties come across items of jewellery, has been examined by the Board and following guidelines are issued for strict compliance.
(i) In the case of a wealth-tax assessee, gold jewellery and ornaments found in excess of the gross weight declared in the wealth-tax return only need be seized.
(ii) 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.
(iii) The authorised officer may, having regard to the status of the family, and the custom and practices of the community to which the family belongs and other circumstances of the case, decide to exclude a larger quantity of jewellery and ornaments from seizure. This should be reported to the Director of Income tax/Commissioner authorising the search at the time of furnishing the search report.
(iv) In all cases, a detailed inventory of the jewellery and ornaments found must be prepared to be used for assessment purposes.21 ITA No. 374/JP/15
Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur These guidelines may please be brought to the notice of the officers in your region."
4.6 The Rajasthan High Court in the case of CIT vs. Satya Naraain Patni [2014] 46 taxmann.com 440 has held as under:
"12. It is true that the circular of the CBDT, referred to supra dt. 11/05/1994 only refers to the jewellery 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 and it does not speak about the questioning of the said jewellery from the person who has been found with possession of the said jewellery. However, the Board, looking to the Indian customs and traditions, has fairly expressed that jewellery to the said extent will not be seized and once the Board is also of the express opinion that the said jewellery cannot be seized, it should normally mean that any jewellery, found in possesion of a married lady to the extent of 500 gms, 250 gms per unmarried lady and 100 gms per male member of the family will also not be questioned about its source and acquisition. We can take notice of the fact that at the time of wedding, the daughter/ daughter-in-law receives gold ornaments jewellery and other goods not only from parental side but in-laws side as well at the time of 'Vidai' (farewell) or/and at the time when the daughter-in-law enters the house of her husband. We can also take notice of the fact that thereafter also, she continues to receive some small items by various other close friends and relatives of both the sides as well as on the auspicious occasion of birth of a child whether male or female and the CBDT, looking to such customs prevailing throughout India, in one way or the another, came out with this Circular and we accordingly are of the firm opinion that it should also mean that to the extent of the aforesaid jewellery, found in possession of the various persons, even source cannot be questioned. It is 22 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur certainly 'Stridhan' of the woman and normally no question at least to the said extent can be made. However, if the authorized officers or/and the Assessing Officers, find jewellery beyond the said weight, then certainly they can question the source of acquisition of the jewellery and also in appropriate cases, if no proper explanation has been offered, can treat the jewellery beyond the said limit as unexplained investment of the person with whom the said jewellery has been found."
4.7 The Hon'ble Karnataka High Court in the case of Pati Devi Vs. ITO 240 ITR 727 (Kar) has held as under:
"The petitioner is aggrieved by the order of the Commissioner dated July 2, 1993 (annexure-D), by which the explanation with regard to 25 tolas of gold and 250 tolas of silver has been accepted and remaining 10 tolas of gold was treated as having not been satisfactorily explained. Learned counsel for the petitioner has brought to my notice instruction dated May 11, 1994, issued by the Central Board of Direct Taxes by which 500 grams of gold jewellery and ornaments per married lady, 250 gms per unmarried lady, 100 gms per male member of the family were directed not to be seized. The instructions issued could only be retrospective in the sense that even if a seizure is made today irrespective of the date of acquisition of gold jewellery, the benefit has to be given to that extent. It is not the value which is increased but it is the weight which is considered reasonable looking to the social circumstances prevailing in the country. Simply because in a particular case the seizure is made on a date earlier to the date of instruction the benefit of instruction dated May 11, 1994, cannot be denied."23 ITA No. 374/JP/15
Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur 4.8 The Hon'ble Rajasthan High Court in the case of CIT vs. Kailash Chand Sharma 146 Taxman 376 (Raj) has held as under:
"11. The question raises two situations; where items of jewellery has been found and following the guidelines in strict compliance of clauses (1), (2) and (3) in which jewellery be seized, therefore, the exclusion of jewellery from assessment on the basis of circular dated 11-5-1994 was obviously not justified.
However, having carefully gone through the orders of the Assessing Officer as well as CIT(A), and the Tribunal, which are perceiving that the exclusion has not been found merely on the basis of circular of CBDT, but it also accepted the explanation submitted by the assessee, which primarily relates to the facts of the case that two ladies were assessed for wealth-tax in 1995-96 (sic) and declaration of the wealth is only in respect of such jewellery which was in their possession which they acquired on certain ceremonies, occasion of marriage of the brother by the wife of the assessee. Looking to the status of the family, the Tribunal found explanation to be plausible for the income in the hands of the family. These jewellery have not been treated to be investment as undisclosed income of the assessee, therefore, it may not be the income received in the hands of the assessee. In the circumstances of the case, notwithstanding one of the reasons is not sustainable, the finding is not required to be disturbed."
4.9 The Hon'ble Gujarat High Court in the case of CIT Vs. Ratanlal Vyaparilal Jain 45 DTR 290 (Guj.) has held as under:
"Search & seizure- Block assessment - computation of undisclosed income - Seizure of Jewellery - Instruction No. 1916 dated 11.05.1992 which lays down guidelines for seizure of jewellery and ornaments in the course of search takes into account the quantity of jewellery which would generally be held by the family members of an appellant- Though the said circular has been issued for the purpose of laying down in guidelines for seizure of jewellery, unless anything contrary is shown, it can be 24 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur safely presumed that the source to the extent of the jewellery stated in the circular stands explained - Hence, Tribunal committed no legal error in treating the extent of jewellery specified in the said circular to be a reasonable quantity and in deleting addition on that basis."
4.10 In light of above CBDT instruction and the proposition laid down by the High Courts, it would be relevant to examine how the same are applicable in the facts of the present case. The issue under consideration relates to jewellery weighing 3299.66 grams found during the course of search conducted u/s 132 of the IT Act. The said jewellery was found in locker No. 60 of Bank of Rajasthan Ltd. MI Road, Jaipur and the Bed room of the assessee. The appellant in his statement recorded u/s 132(4) of the Act in response to question n No. 35 has stated that the said jewellery found in his locker as well as in his bed room belongs to the assessee himself, his wife Smt. Maya Sharma, Son Shri Karan Sharma, Daughter in law Smt. Shivani Khanna, and unmarried daughter Smt. Radhika Sharma. Further in the said statement, the appellant has stated that the jewellery pertaining to his son Shri Karan Sharma is stated at Sl.No.5 of the inventory weighing 120.50 grams which has been inventorised separately. In light of assessee's statement as well as statement of other members of the family and following the CBDT instruction No. 1916, the AO while concluding the assessment has allowed credit of 750 grams on jewellery pertaining to the asseseee, his wife and his unmarried daughter treating the same has explained and the remaining jewellery weighing 2549.66 grams valued at Rs.54,50,075/- was brought to tax as undisclosed investment. During the course of assessment proceedings the appellant submitted that he is living along with his parents and the families of his two younger brothers who all also stayed with him in a joint family property at their residence at H-1, Chitranjan Marg, C-Scheme, Jaipur which is owned by the appellant's deceased father.
25 ITA No. 374/JP/15Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur The jewellery belonging to/owned by this joint family was kept in the custody of the appellant and his wife for the reason of his being the head of the family, and also in the bank locker for safety reasons. Such a practice is quite commonly prevalent in old joint Hindu families having family values wherein the head of the family is entrusted with the responsibility to keep the valuables such as jewellery etc. with him. In the present case, the appellant i.e. Dr. Shailendra Sharma, being the eldest son, is head of the family given the fact that his father (now deceased) due to old age was not able to look after the affairs of the joint family. Therefore, in his capacity as the head of the family, the custody of entire jewellery of all the members of the joint family was entrusted to him i.e. the appellant. The appellant accordingly submitted that the family consists of 6 male members, 5 married ladies, and 4 unmarried ladies and if the credit is given as per CBDT instruction dated 11.05.1994, the total jewellery found weighing 3631.59 grams is to be considered as explained. In this regard, the ld CIT(A) has given a finding that during the course of search no such claim was made, further the jewellery found from brother of the assessee family Shri Ashwani Sharma was inventorised separately for 304.200 grams. Similarly the jewellery found from bed room of Shri Karan Sharma weighing 120.500 grams was also inventorised separately. It was further stated by the ld. CIT(A) that even the other family members during the course of search has not made any such submission either owning jewellery in excess of 500 grams or claiming that their personal jewellery was kept either in the bank locker of the assessee or in the bed room of the assessee. During the course of hearing before us, the assessee reiterated its submissions made before the lower authorities and nothing further has been brought to the notice of the Bench that controvert the said findings of the ld. CIT(A). In light of above discussions, we are of the view that the appellant shall be eligible to 26 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur claim the benefit of the said CBDT instruction in respect of jewellery found in his possession to the extent it relates to himself (100 grams), his wife (500 grams), daughter-in law (500 grams) and unmarried daughter (250 grams). The said jewellery totalling to 1350 grams shall thus be treated as explained. The jewellery pertaining to assessee's son Shri Karan Sharma (120.50 grams) found in his possession has been inventorised separately and no credit can be given to the assessee.
4.11 Now coming to the other contentions of the ld. AR that the appellant has declared investment in the acquisition of jewellery to the extent of Rs. 40 lacs in the statement recorded during the search for which the necessary application of fund was claimed in the fund flow statement wherein a sum of Rs. 4,14,139/- claimed in acquisition in the fund flow statement for A.Y. 2011- 12 and a sum of Rs. 15,10,000/- was also claimed in A.Y. 2012-13 and shown the same as the application of funds which is part of the total disclosure of undisclosed income made by the appellant. It was further submitted that these entries in the fund flow statements were made based on the entries found noted in the seized papers which have been disbelieved by Ld. AO on mere assumption without even appreciating the bills available. Further from thr perusal of fund flow statement your honours would observe that fund of Rs 20,34,751/- remained available on the date of search with the appellant on which the taxes have already been paid, and since no other investment representing such fund were found during the course of search, the benefit of telescoping of same should be given out of the jewellery alleged as unexplained. We have given a careful consideration to the said contentions of the ld AR and are of the view that where the assessee has offered certain undisclosed income to tax, any application of funds arising out of such 27 ITA No. 374/JP/15 Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur undisclosed income should be eligible for necessary credit in the hands of the assessee. Accordingly, Rs. 19,24,139/- claimed as application of funds towards actual purchase of jewellery should be treated as explained and no further addition to that extent should be made in the hands of the assessee. Regarding surplus fund of Rs. 20,34,751/- remaining available as on date of search, it is noted that the said surplus funds arise out of undisclosed income which is duly offered to tax, the assessee would therefore be eligible to claim telescoping out of the said income. The ld CIT(A) has held that the assessee has not furnished any evidence towards purchase of jewellery out of such surplus funds and hence, benefit cannot be allowed to him. In our view, where the income has already suffered taxation and the assessee claim utilisation of the said income towards purchase of jewellery, the assessee should not be denied the benefit of telescoping in absence of anything to the contrary on record. The assessee would therefore be eligible for telescoping benefit of Rs 20,34,751.
4.12 In light of above discussions, the matter is set-aside to the file of the AO to allow the necessary credit in terms of CBDT instruction to the extent of 1350 grams of jewellery as against 750 grams currently allowed and further allow the benefit of Rs. 19,24,139/- as utilisation of funds out of undisclosed income already offered to tax, and also allow the benefit of telescoping to the extent of Rs 20,34,751. The ground is disposed off accordingly.
28 ITA No. 374/JP/15Dr. Shailendra Sharma vs. DCIT, Circle-1, Jaipur In the result the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 20/12/2016.
Sd/- Sd/-
(KUL BHARAT) (VIKRAM SINGH YADAV)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Jaipur
Dated:- 20/12/2016
Pillai
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Dr. Shailendra Sharma
2. izR;FkhZ@ The Respondent- The DCIT, Circle-I, Jaipur
3. vk;dj vk;qDr@ CIT -I, Jaipur
4. vk;dj vk;qDr¼vihy½@The CIT(A)-I, Jaipur
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.374/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar.29