2007 (6) TMI 146 - HC - Income Tax

Taxability u/s 68 of the Act CIT(A) rejected the addition made by the AO as unexplained cash credit u/s 68 of the Act on the ground of the assessee had disclosed the funds introduced under VDI scheme and also paid tax on it Tribunal and HC also upheld the order of CIT(A)

Summary

Issues: Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal regarding the taxability of amount claimed from the sale of jewellery under Section 68.

Analysis:

Issue 1: Whether the amount claimed from the sale of jewellery can be brought to tax under Section 68 without evidence of the sale?

The assessee, a H.U.F. involved in money lending, disclosed a total income in the return for the relevant assessment year. The Assessing Officer treated a certain amount as unexplained cash credit under Section 68 of the Act. The Revenue contended that the assessee did not prove the sale of jewellery to family members, justifying the addition made by the Assessing Officer. However, the assessee introduced funds for the sale of gold and silver under the VDI Scheme, with the jewellery later sold to family members resulting in a capital loss. Affidavits from buyers and detailed descriptions of purchases were filed, which were not disputed by the Revenue. The Assessing Officer did not dispute the sale consideration and failed to provide additional evidence supporting the contention that the transaction was sham. Both the first appellate authority and the Tribunal found no material suggesting the transaction was sham, concluding that the amount received from the sale of jewellery could not be taxed under Section 68. Citing the Supreme Court's decision in Commissioner of Income-tax Vs. P.Mohanakala, the High Court upheld the concurrent findings of the lower authorities, stating no error or legal infirmity in the Tribunal's order.

Issue 2: Whether the sale of jewellery was disputed by the Assessing Officer and treated as a sham transaction?

The Assessing Officer treated the amount as unexplained cash credit under Section 68, but the sale consideration was not disputed, and no additional evidence was provided to support the claim that the transaction was sham. The authorities below found no material indicating the transaction was sham, and the Tribunal confirmed that the sum received from the sale of jewellery could not be taxed under Section 68. The High Court, relying on the Supreme Court's decision, upheld the findings of the lower authorities, dismissing the appeal by the Revenue.

In summary, the High Court dismissed the appeal by the Revenue, upholding the lower authorities' findings that the amount received from the sale of jewellery to family members could not be taxed under Section 68 of the Income Tax Act, 1961, due to lack of evidence supporting the claim that the transaction was sham.