2012 (2) TMI 134 - AT - Income Tax

Assessee dealer in diamonds - sale not accounted in books - No confirmation by M/s Alpha Exports sale was on approval basis - Held That - The contention of assessee cannot be accepted as if the transaction was on approval the question on encashing the cheque do not arise. Bad Debt - Held That - When the sales were not recorded in books, party cannot be treated as Bad Debt thus there was no occasion or question to write off the said debt as irrecoverable in the books of account. Normal Profit in diamond business around 2% to 8% additions assessed income on higher side - Held That - When a confirmed sale has been made to M/s export there has to be a confirmed purchase of corresponding diamonds. As regards the purchase price of diamonds made by the assessee from M/s White Diamonds Industries Ltd., it is observed that the same has been shown by the assessee himself at Rs.3,36,619/- and there is nothing brought on record by the assessee to show that it was actually more. Decided against assesee.

Summary

Issues:
Addition of unaccounted sale of diamonds.

Analysis:
The appeal was against the addition of Rs.15,16,616 made by the Assessing Officer (AO) on account of unaccounted sale of diamonds. The assessee, an individual, had not disclosed any transaction of purchase and sale of diamonds in the return of income. The AO added the entire sales value of diamonds to the total income of the assessee. The CIT(A) sustained the addition to the extent of Rs.11,79,797. The assessee contended that there was no purchase or sale of diamonds during the year under consideration due to lack of confirmation from the buyer. However, the AO and CIT(A) found merit in the evidence indicating a confirmed sale of diamonds to the buyer.

The CIT(A) held that the AO should have added only the net profit earned by the assessee from the diamond transactions. The net profit was calculated at Rs.11,79,797. The assessee appealed to the Tribunal challenging the CIT(A)'s decision. The Tribunal heard arguments from both sides and reviewed the relevant material. The assessee's counsel reiterated the earlier submissions, emphasizing the absence of confirmation by the buyer for the diamond sale. However, the Tribunal disagreed with this contention, citing evidence from the petition filed by the assessee under the Negotiable Instrument Act, which clearly indicated a confirmed sale of diamonds.

The assessee raised alternative contentions before the Tribunal. Firstly, the assessee sought to claim the entire sale proceeds as bad debts or business loss. However, as the sale was not recorded in the books of account, such a claim was not accepted. Secondly, the assessee argued that the profit from trading in diamonds should be restricted to a certain percentage range. The Tribunal rejected this argument, emphasizing the confirmed sale of diamonds and the lack of evidence to support a higher purchase price. Ultimately, the Tribunal dismissed the appeal of the assessee, upholding the addition of unaccounted sale of diamonds.

In conclusion, the Tribunal upheld the addition made by the AO and sustained by the CIT(A), emphasizing the confirmed sale of diamonds and rejecting the alternative contentions raised by the assessee.