2004 (9) TMI 662 - AT - Income Tax

Summary

Issues Involved:
1. Validity of issuance of notice, reopening of assessment, and reasons for reopening.
2. Addition of income from alleged bogus sales of loose diamonds.

Detailed Analysis:

1. Validity of Issuance of Notice, Reopening of Assessment, and Reasons for Reopening:

In the case of Mohanlal R. Daga (ITA No. 7963/Mum/2003), the assessee disputed the validity of the notice issued under section 148, the reopening of the assessment, and the reasons for reopening due to the failure of the Assessing Officer (AO) to provide the reasons for reopening despite requests. The assessee cited decisions from Comunidade of Chicalim vs. ITO and Ors. and GKN Driveshafts (India) Ltd vs. ITO and Ors., which emphasized the necessity of the AO to furnish reasons for reopening within a reasonable time and to allow the assessee to file objections.

The Departmental Representative argued that the defect of not providing reasons is curable, and the matter should be remanded to the AO to communicate the reasons and reframe the assessment. This argument was supported by the decision in Gehna vs. Union of India and Anr.

The Tribunal, after considering the rival contentions and relevant legal precedents, held that the AO ought to have supplied the reasons for the reopening of the assessment to the assessee, especially when a specific request was made. However, the Tribunal decided not to set aside the matter to the AO for compliance, as no material prejudice was caused to the assessee in view of the findings on merits.

2. Addition of Income from Alleged Bogus Sales of Loose Diamonds:

Mohanlal R. Daga (ITA No. 7963/Mum/2003):

The assessee contended that the sale of 71 carats of loose diamonds to M/s Dhananjay Diamonds was genuine and supported by evidence, including a VDIS certificate, sales certificate, and bank statements. The AO had made an addition of Rs. 11,18,250 by treating the sale as bogus based on statements made by Vishnu Dutt Trivedi (VDT), the proprietor of M/s Dhananjay Diamonds, during a survey. The assessee argued that these statements were general, did not specifically mention the assessee, and were retracted by VDT. Moreover, the assessee was not given an opportunity to cross-examine VDT regarding these statements.

The Tribunal held that the statements made by VDT during the survey, which were not recorded in the assessee's case and for which no cross-examination opportunity was provided, could not be used against the assessee. The Tribunal also noted that VDT had retracted his statements and supported the assessee's transaction in a subsequent statement and affidavit. The Tribunal found no justification for treating the sale as bogus and deleted the addition.

Smt. Sampat Devi M. Daga (ITA No. 7845/Mum/2003):

In the case of Smt. Sampat Devi M. Daga, the facts were identical to those of Mohanlal R. Daga. The AO had made an addition of Rs. 10,43,595 by treating the sale of 65.90 carats of loose diamonds to M/s Dhananjay Diamonds as bogus based on the same statements made by VDT. The Tribunal followed its decision in the case of Mohanlal R. Daga, holding that the statements made by VDT during the survey could not be used against the assessee without providing an opportunity for cross-examination. The Tribunal also noted that VDT had retracted his statements and supported the transaction in a subsequent statement and affidavit. Consequently, the Tribunal deleted the addition.

Conclusion:

The Tribunal allowed the appeals of both Mohanlal R. Daga and Smt. Sampat Devi M. Daga, deleting the additions made by the AO on account of alleged bogus sales of loose diamonds. The Tribunal emphasized the importance of providing reasons for reopening assessments and affording the opportunity for cross-examination when relying on statements made during surveys.