TaxTMI 
TaxTMI 
2006 (3) TMI 205
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.... the VDIS tax and necessary entries recorded in the books of account. 3. (a) The CIT(A) erred in disallowing Long-Term Capital Loss aggregating to Rs. 4,20,750/- arising on sale of the jewellery disclosed under VDIS, 1997 on the ground that the source of acquisition of the gold ornaments was not proved. 3. (b) The CIT(A) failed to appreciate that under VDIS, 1997 the source of acquisition of the gold ornaments was disclosed as per affidavits submitted with declaration to the Income-tax Commissioner." 2. We have heard the rival submissions and carefully perused the orders of authorities below and documents placed on record. 3. Apropos ground No.1, it is noticed that the assessee has paid interest on funds raised for introduction as the assessee's capital in his firm. The Assessing Officer noticed that since the assessee did not receive any interest from the firm as there was no specific provision for payment of interest to partners, he disallowed the interest paid on the borrowed funds. The Assessing Officer disallowed the payment of interest for two reasons: (1) The interest payment on interest-free loans advanced to the firm is covered under section 40A(2)(b) of the Act.....
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....m and not on account of investment made by him in the firm. Unless and until the nexus is established between the borrowed funds and the income of the assessee, the deduction of the interest paid on the borrowed funds would not be allowed against the income. In the instant case, since no nexus was established between the borrowed funds and remuneration earned by the assessee, the Assessing Officer was justified in disallowing the interest paid on the borrowed funds. We, therefore, find no infirmity in the order of the CIT(A). 6. Ground No. 2 relates to an addition of Rs. 8,54,758/- as unexplained investment under section 69 of the Income-tax Act. The facts available on record in this regard are that the assessee has made a disclosure under VDIS, 1997 on 5-7-1997. The Certificate under section 68(2) of the VDIS, 1997 was issued on 30-9-1997 by the CIT. The assessee had got the valuation of the jewellery done on 1-7-1997 at Rs. 22,54,390/- and it was declared in the VDIS, 1997. In order to raise funds for payment of VDIS tax which had been computed at Rs. 8,47,317/-, the assessee has sold 2220 gms. of gold ornaments on 2-7-1997 for Rs. 8,54,758/- and from this sale proceeds, the VDI....
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....use of VDIS, the CBDT had made a provision for review of the Certificate issued to unscrupulous tax payers but the addition to the returned income is not possible when the certificate issued by the CIT is in force. The ld. Counsel for the assessee further contended that the Instruction No. 3965 dated 16-10-1997 is an internal communication, which was never intended to and cannot override the provisions of VDIS. Such instruction cannot become the basis of addition by the Assessing Officer when the Certificate issued under section 68(2) is in force and has not been revoked. In support of his contention, the assessee has relied upon the judgment of Delhi High Court in the case of Nabha Investments (P.) Ltd. v. UOI [2000] 246 ITR 41 and Smt. Sushila Rani v. CIT [2002] 253 ITR 775 (SC). 9. The ld. Departmental Representative, on the other hand, has submitted that here is not a dispute with regard to validity of the certificate issued by the CIT(A) under section 68(2) of the VDIS. The only dispute is whether the jewellery sold on 2-7-1997 is a part of the jewellery declared in VDIS on 5-9-1997. The ld. Departmental Representative has invited our attention to section 66 of VDIS, 1997 wit....
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....d by him or in any other record and intimates the credit so made to the Assessing Officer. If no books of account are maintained, it is expected that the declarant will make the credit in some other record. The second condition for the voluntarily disclosed income not to be included in the total income for any assessment year is that tax in respect of the disclosed amount is paid within the time specified in section 66 or section 67 of the Finance Act, 1997. The ld. Departmental Representative further invited our attention to the format of declaration form with the submission that assessee has to declare the assets which he held on the date of declaration. Admittedly, this declaration was filed on 05-09-1997 and on that very day the assessee itself has declared the gold ornaments worth Rs. 22,54,390/-. If the contention of the assessee is accepted that part of the gold ornaments were sold for Rs. 8,54,758/- on 2-7-1997, the declared value would have been reduced by this amount but this was not done by the assessee. Meaning thereby, 2220 gms. of gold ornaments are not part of declared gold ornaments. Since the assessee failed to explain the source of acquisition of this gold ornamen....