2005 (1) TMI 731 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of additions made under Section 68 on account of cash credits.
2. Deletion of additions made under Section 69C on account of commission payments for alleged hawala transactions.

Issue-wise Detailed Analysis:

1. Deletion of Additions under Section 68 on Account of Cash Credits:

The core issue in these appeals is the deletion of additions made by the Assessing Officer (AO) under Section 68 due to cash credits introduced in the capital accounts of the assessee, allegedly from the sale proceeds of jewelry/diamonds received from specific jewelers. The Department's grievance is against the deletion by the Commissioner of Income Tax (Appeals) [CIT(A)] of these additions.

The assessee had declared undisclosed assets in the form of investments in jewelry/diamonds under the Voluntary Disclosure of Income Scheme (VDIS) 1997. The return was accepted, and a certificate was issued. However, based on information that certain jewelers were indulging in hawala transactions, proceedings under Section 147/148 were initiated against the assessee. Statements from the jewelers indicated that they issued cheques after accepting cash through middlemen, leading the AO to treat the sales as fictitious and the amount received as income from undisclosed sources.

The CIT(A) concluded that the AO was not justified in drawing adverse inferences against the assessee. The CIT(A) considered that neither the middlemen were summoned nor any action taken against them. The CIT(A) also noted discrepancies in the statements of the jewelers and the lack of direct evidence. The CIT(A) relied on various case laws, including the Supreme Court decision in Kishinchand Chellaram v. CIT, and held that the adverse inference drawn by the AO was not justified without full material and direct evidence. Consequently, the CIT(A) deleted the additions made under Section 68.

2. Deletion of Additions under Section 69C on Account of Commission Payments:

The Department also objected to the deletion of additions made under Section 69C for commission payments at the rate of 3% for arranging the alleged hawala transactions. The AO had made these additions based on the statements of the jewelers, which indicated that cheques were issued after accepting cash through middlemen.

The CIT(A) found no material evidence to establish that the assessee paid 3% commission over and above the cheque amount received from the sale of jewelry and diamonds. The CIT(A) noted that the statements of the jewelers were not provided to the assessee for filing explanations or objections, thus denying natural justice. The CIT(A) relied on case laws and concluded that the AO's adverse inference was not justified. Therefore, the CIT(A) deleted the additions made under Section 69C.

Conclusion:

The Tribunal, after considering the rival submissions and perusing the orders of the authorities below, found no infirmity in the orders of the CIT(A). The Tribunal noted that the CIT(A) had taken into consideration various discrepancies and contradictions in the facts and statements recorded. The Tribunal confirmed the findings of the CIT(A) that the adverse inference drawn by the AO was not justified without full material and direct evidence. The Tribunal also noted that the CIT(A) had relied on various case laws, and no contrary decisions were brought to the notice of the Bench.

Outcome:

The Tribunal dismissed all five appeals of the Revenue, confirming the orders of the CIT(A) and rejecting the grounds of the Revenue in these appeals.