2014 (10) TMI 1 - HC - Income Tax

Benefit under Voluntary Disclosure of Income Scheme Sale transaction of diamonds - Genuine transaction or not - Held that - All the three assesses made separate voluntary disclosures of their income, in response to a scheme and they were also issued the certificates - For one reason or the other, the family thought of selling away the jewellery - the diamonds were separated from gold and while the gold was sold at Hyderabad, diamonds were sold at Surat - The resultant sale proceeds were shown as capital gains in the respective returns for the AY 1998-99 - there is ample evidence to show that all the three assesses have sold the diamonds, that are separated from the jewellery, at Surat. It is a place known for voluminous business in diamonds - Not only the particulars of the persons, who purchased the diamonds was furnished, but also the manner of payment was disclosed - The entire payments were through demand drafts - The purchaser was undoubtedly a dealer in diamond - Even assuming that on certain occasions, the corresponding assessee did not proceed to Surat, it cannot be a factor to disbelieve the transaction - When not only the respondents have disclosed the wealth in VDIS, but also have shown sale proceeds as capital gains, it was farfetched, if not unreasonable, on the part of the AO, to doubt their honesty in this behalf - Though it is prerogative of the State to levy tax, referable to its sovereign power, it cannot be extended to the level of regulating the conduct of a citizen to such minute extents - Except that the AO intended to treat the sale proceeds of jewellery u/s 68 of the Act, no other provision of law is invoked, nor any principle is projected Decided against revenue.

Summary

Issues:
1. Validity of alleged sale transaction of diamonds under VDIS.
2. Treatment of sale proceeds as capital gains.
3. Direction to Assessing Officer regarding aggregation for rate purposes.

Analysis:

Issue 1: Validity of alleged sale transaction of diamonds under VDIS
The case involves three assesses who availed benefits under the Voluntary Disclosure of Income Scheme (VDIS) by declaring jewellery items, primarily gold and diamonds. The controversy arose regarding the genuineness of the sale of diamonds declared by the assesses, with the Assessing Officer doubting the transaction at Surat. However, the Tribunal found ample evidence supporting the sale of diamonds, including details of purchasers and payment methods. The Tribunal's decision was based on factual findings, and no legal arguments were presented challenging the Tribunal's decision. The Court upheld the Tribunal's decision, emphasizing the lack of legal grounds to dispute the transaction's authenticity.

Issue 2: Treatment of sale proceeds as capital gains
While the sale proceeds from gold were accepted by the Assessing Officer, doubts were raised specifically regarding the sale proceeds of diamonds. The Assessing Officer treated the amount shown as sale proceeds of diamonds as unexplained cash credit, invoking Section 68 of the Income Tax Act. However, the Tribunal, after thorough verification and cross-verification of details, concluded that the sale of diamonds was genuine and not subject to Section 68 scrutiny. The Court upheld the Tribunal's decision, highlighting the Assessing Officer's extensive verification process and the lack of legal basis to challenge the Tribunal's factual findings.

Issue 3: Direction to Assessing Officer regarding aggregation for rate purposes
Additionally, the Tribunal directed the Assessing Officer not to aggregate a specific sum from M/s. Basant Farms for rate purposes. The Tribunal's decision was not legally challenged, and no specific legal provision or principle was invoked to contest this direction. The Court, based on the absence of legal arguments challenging the Tribunal's decision, dismissed the appeals without costs, indicating that the relief granted by the Tribunal was factual in nature and not subject to legal dispute.

In conclusion, the High Court of Andhra Pradesh upheld the Tribunal's decision in favor of the assesses, emphasizing the factual basis of the findings and the lack of legal grounds to challenge the authenticity of the sale transactions or the treatment of sale proceeds. The judgment underscores the importance of factual evidence in tax assessments and the limited scope for legal challenges without substantial legal arguments.