The Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has allowed the deduction after the Assessing Officer denied granting Section 54F of the Income Tax Act, 1961, deduction for long-term capital gains from the sale of inherited jewellery.
The assessee has claimed capital gains of Rs.6,29,20,349/- arising out of sale of jewellery of Rs.7,09,53,800/-. This capital gains is stated to be reinvested in purchase of a residential house through a registered sale deed dated 09-02-015 situated at No.223, Defence Colony, HAL II Stage, Indiranagar, Bengaluru, consisting of ground plus three floors of 7000 sq.ft. and site area of 4000 sq.ft. for an amount of Rs.6,00,00,000/- excluding stamp duty and registration charges. The total reinvestment as per computation of total income is Rs.6, 45, 00,000/-.
This alleged inherited gold and diamond jewellery was sold by the assessee for Rs.7, 09, 53,800/-. The assessee has claimed that the jewellery has been sold to M/s. Navrathan Jewellers, Jayanagar, Bengaluru, on various dates from June 2015 to Feb. 2016. Ongoing through the Wealth tax returns filed by the assessee for the assessment year 2015-16, it is found that the assessee has admitted following gold jewellery totalling to Rs.4.31,94.407/-
The Assessing Officer (AO) proceeded to tax the sale price of jewelry as part of the assessee’s income under Section 56 of the Act, categorized under “other sources”. However, the National Forum on Advance Rulings (NFAC), considering the circumstances of the case, concluded that the sale proceeds of inherited jewelry should not be treated as income from other sources but rather as a long-term capital asset inherited from the assessee’s mother-in-law.
The AO’s denial of the deduction claimed by the assessee under Section 54F of the Act was deemed incorrect by the NFAC. Therefore, the NFAC directed the learned AO to eliminate the addition made under the head of other source income and to allow the assessee the benefit of deduction under Section 54F of the Act.
Mr. G Manoj Kumar, representing the revenue observed that the valuation reports furnished by the assessee from Navarathan Jewellers Pvt. Ltd. dated 28.5.2015 valuing the jewellery as on 31.3.2015 does not tally with the quantity and weight of jewels at 26038.97 Gms. and it was only gross 7243 Gms. Jewellery inherited from impugned Will.
The CIT (A) was not justified in giving the findings with regard to existence of long term capital assets in the form of jewellery acquired through the Will from Late Kasturi Shoury and consequently granting the relief which is incorrect without reconciling the quantity of jewels mentioned in the Will vis-à-vis Valuation Certificate issued by the Navarathan Jewellers Pvt. Ltd
The Two-bench member of Beena Pillai ( Judicial member ) and Chandra Poojari ( Accountant member ) observed that this issue has to be required to be re-examined at the end of CIT (A)/NFAC and the assessee is directed to reconcile the quantum of jewellery inherited through the impugned Will along with valuation report issued dated 28.5.2015 by Navarathan Jewellers Pvt. Ltd. No.85, Bangalore-1 valuing the jewellery as on 31.3.2015 vis-à-vis the quantum of sale of jewellery.
Accordingly, the issue in dispute is remitted to the file of CIT (A)/NFAC for reconsideration to decide the same afresh. It is needless to say that an opportunity of proper hearing to be given to the assessee before deciding the issue in accordance with law. Accordingly, the appeal of the revenue allowed.
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