2006 (4) TMI 525 - AT - Income Tax

Issues Involved:
1. Addition of Rs. 10,35,562 on account of alleged unaccounted income from the sale of jewellery declared under VDIS, 1997.
2. Non-treating of Rs. 28,679 as taxable under the head long-term capital gain.

Issue 1: Addition of Rs. 10,35,562 on Account of Alleged Unaccounted Income from Sale of Jewellery Declared under VDIS, 1997

The assessee declared diamond jewellery weighing 65.75 cts. under VDIS, allegedly sold on 20th Jan., 1998 to M/s Dhananjay Diamonds (DD), proprietary concern of Shri Vishnudutt Trivedi (VDT). The IT Department conducted a survey on 30th March, 2000 at VDT's business premises, discovering that the transactions of purchase and sale of diamonds by VDT were fictitious. Consequently, the AO treated the sale of diamonds by the assessee to DD as bogus, adding the sale proceeds as undisclosed income.

The assessee contended that the issue was covered in favour of the assessee by the Mumbai Tribunal's decision in Mohanlal R. Daga vs. ITO (2005) 92 TTJ (Mumbai) 1236. The Tribunal in that case deleted the addition, holding the facts identical to the present case. The Departmental Representative relied on the orders of the authorities below.

The Tribunal considered the rival contentions, relevant material, and cited decisions. The facts of the present case were found identical to those in Mohanlal R. Daga. Therefore, the Tribunal followed the decision in Mohanlal R. Daga, deleting the addition.

However, the Accountant Member (AM) did not concur with the Judicial Member (JM). The AM noted that the assessee credited Rs. 10,35,562 in his capital account, representing the sale of diamonds declared under VDIS. The AO, based on VDT's statement during the survey, treated the transaction as bogus. The AM emphasized that the explanation offered by the assessee should be reasonable and inspire confidence. The AM found that the materials brought on record were sufficient to reject the assessee's explanation, holding that the AO was justified in treating the impugned cash credit as unexplained.

The AM highlighted the detailed modus operandi of VDT's business, corroborated by the absence of stock and large cash deposits in VDT's bank accounts. The AM concluded that the assessee failed to prove the genuineness of the sale transaction, and the AO rightly added the amount as unexplained cash credit.

The matter was referred to the Third Member (TM) due to the difference of opinion. The TM noted that the facts were substantially identical to those in Mohanlal R. Daga. The TM found no reason to take a different view, emphasizing that the diamonds were declared under VDIS, sold to DD, and the sale consideration was received through account payee cheque. The TM held that the source of the amount credited in the books was satisfactorily explained, and the AO was not justified in making the addition.

In view of the majority opinion, the addition of Rs. 10,35,562 was deleted, and the first ground was allowed in favour of the assessee.

Issue 2: Non-Treating of Rs. 28,679 as Taxable under the Head Long-term Capital Gain

The assessee contended that this ground was consequential and would become academic/infructuous if the Tribunal's decision on ground No. 1 was in favour of the assessee. The Departmental Representative supported the orders of the authorities below.

Considering the rival contentions, the Tribunal held that this ground became infructuous and dismissed it accordingly.

Conclusion:

The appeal of the assessee was partly allowed. The addition of Rs. 10,35,562 was deleted, and the second ground regarding Rs. 28,679 was dismissed as not pressed.

← Previous Next →