2005 (10) TMI 422 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 25,16,504 made by the Assessing Officer on account of rough, cut, and polished diamonds.
2. Deletion of the value of 829.39 carats of diamonds received by the assessee from a labor party.
3. Allowance of deduction under section 80HHC on the addition under section 69 of unexplained investment in the purchase of diamonds.
4. Deletion of interest charged under section 234B of the Income Tax Act.
5. Confirmation of addition of Rs. 24,84,853 being purchases from LL Moradia and Thackersy Patel.
6. Receipt of cut and polished diamonds of 563.34 carats from M/s. Gayatri Exports.
7. Claim of business loss of Rs. 88,72,947 on account of confiscation of stock by custom authorities.

Detailed Analysis:

1. Deletion of Addition of Rs. 25,16,504
The CIT(A) deleted the addition of Rs. 25,16,504 made by the Assessing Officer, accepting the stock register entries as genuine. However, the Tribunal found the stock register pages presented by the assessee unreliable, noting they were not stamped by customs authorities and appeared to be written in one sitting. The matter was restored to the Assessing Officer to verify the existence and authenticity of the stock register prior to the search and the findings of the customs authorities. This issue was allowed for statistical purposes.

2. Deletion of the Value of 829.39 Carats of Diamonds
The CIT(A) deleted the addition based on the stock register, which the Tribunal found unreliable. The Tribunal directed the Assessing Officer to verify the stock register's authenticity and whether it matched the actual stock register kept before the search. This issue was also allowed for statistical purposes.

3. Allowance of Deduction under Section 80HHC
The CIT(A) allowed the deduction under section 80HHC on the addition made under section 69, considering it as business income. The Tribunal disagreed, stating that income under section 69 is deemed income and cannot be classified under any specific head of income, including business income. It emphasized that section 80HHC deductions apply only to profits derived directly from export activities. The Tribunal cited relevant case laws, including Fakir Mohmed Hazi Hasan v. CIT and Pandian Chemicals Ltd. v. CIT, to support its decision. This ground of the revenue was allowed, denying the deduction under section 80HHC.

4. Deletion of Interest Charged under Section 234B
Interest under section 234B is consequential. The Tribunal directed the Assessing Officer to give consequential effect after finalizing the other grounds. This issue was allowed for statistical purposes.

5. Confirmation of Addition of Rs. 24,84,853
The CIT(A) confirmed the addition due to the lack of evidence of purchases from LL Moradia and Thackersy Patel. The Tribunal restored the matter to the Assessing Officer to verify the original panchnama prepared by customs authorities and the genuineness of the purchases. This ground was allowed for statistical purposes.

6. Receipt of Cut and Polished Diamonds from M/s. Gayatri Exports
The Tribunal restored this issue to the Assessing Officer to verify the existence of any stock register kept by the assessee prior to the search. The decision was to be based on the original stock register if available. This ground was allowed for statistical purposes.

7. Claim of Business Loss on Account of Confiscation of Stock
The assessee claimed a business loss due to the confiscation of stock by customs authorities. The Tribunal noted that the issue was still contested before customs authorities and directed the Assessing Officer to decide after the final order by customs authorities. The decision should consider the Gujarat High Court's ruling in Fakir Mohmed Hazi Hasan's case. This ground was allowed for statistical purposes.

Conclusion
The Tribunal allowed the appeal of the revenue on the grounds of deletion of addition under section 69 and deduction under section 80HHC, while other issues were restored to the Assessing Officer for further verification and statistical purposes. The appeal of the assessee was also allowed for statistical purposes, requiring further verification by the Assessing Officer.