2018 (4) TMI 398 - AT - Income Tax

Genuine transaction of sale of jewellery - addition made on account of accommodation entry - Held that - The issue involved in the present case is that sale of jewelry shown by the assessee to the jeweler is alleged to be an accommodation entry and there is no real sale. This allegation is based on the facts gathered by the investigation wing where the jeweler has confessed the same. Hence we also direct the assessee to produce jeweler, in person, along with the (i) books of accounts of jeweler (ii) treatment of sale of jewelry by the assessee in books of jeweler (iii) the impact in the assessment order of the jewelers of this sale whether the jeweler has accepted it as real sale or merely an accommodation entry (iv) Any other details regarding the purchase of jewelry from assessee The assessee is directed to produce jeweler with these details before the ld AO within three months from the date of receipt of this order. AO may examine the jeweler with respect to his books of accounts as well as the earlier allegation of accommodation entry provided by the jeweler and then examine the issue afresh and decide the issue of genuineness of sales of jewelry. If the assessee fails to produce the jeweler along with necessary details as directed, ld AO may decide the issue on merit as per facts available on record.

Summary

Issues Involved:
1. Deletion of addition on account of accommodation entry.
2. Validity of initiation of proceedings under Section 147 of the Income Tax Act.
3. Genuineness of the transaction of sale of jewelry.

Detailed Analysis:

1. Deletion of Addition on Account of Accommodation Entry:

The primary issue was whether the jewelry sale transaction by the assessee to M/s. Bishan Chand Mukesh Kumar was genuine. The Assessing Officer (AO) had added ?75,77,504 to the assessee's income, alleging it was an accommodation entry, not a real sale. The CIT (A) deleted this addition, which was upheld by the ITAT. The High Court remanded the case back to ITAT for a fresh examination.

The ITAT referenced a similar case (Sarla Jain) where the High Court had directed verification of the genuineness of the jewelry sale. The ITAT noted that the jewelry was declared under the VDIS scheme, and the sale was supported by account payee cheques, VDIS declaration, valuation report, and an affidavit from the jeweler. The AO had not provided any seized material to the assessee nor allowed cross-examination of the jeweler, violating principles of natural justice. The ITAT concluded that the AO's addition was based on conjecture and lacked evidence, thus deleting the addition.

2. Validity of Initiation of Proceedings Under Section 147:

The assessee challenged the initiation of reassessment proceedings under Section 147, arguing there was no tangible material against them. The CIT (A) confirmed the initiation based on general statements and a circular letter. The ITAT held that the High Court had not directed them to decide on the legal issue of reopening and thus dismissed the cross-objection.

3. Genuineness of the Transaction of Sale of Jewelry:

The ITAT emphasized the need to verify the genuineness of the jewelry sale transaction. The High Court had directed the ITAT to independently examine whether the sale was genuine. The ITAT noted that the jewelry declared under VDIS was not in question; the focus was on verifying the sale to M/s. Bishan Chand Mukesh Kumar. The ITAT directed the assessee to produce the jeweler along with relevant books of accounts and details of the transaction. The AO was instructed to verify these details and decide the issue afresh. If the assessee failed to produce the jeweler, the AO could decide based on available records.

Conclusion:

The ITAT allowed the revenue's appeal for statistical purposes, directing a fresh examination of the jewelry sale's genuineness. The cross-objection by the assessee regarding the reopening of assessment was dismissed as it had attained finality by the High Court's order.