2000 (3) TMI 206 - AT - Income Tax

Summary

Issues Involved:
1. Justification of the addition of Rs. 92,29,856 for payments/adjustments against the purchase price of silver.
2. Applicability of section 40A(3) of the Income-tax Act.
3. Legitimacy of the purchase transactions and their recording in the books of account.
4. Burden of proof regarding unaccounted income and cash payments.

Summary:

1. Justification of the Addition of Rs. 92,29,856:
The main grievance of the assessee was that the CIT(A) was not justified in confirming the addition of Rs. 92,29,856 in respect of payments/adjustments against the purchase price of silver. The assessee argued that the payments were not hit by the provisions of section 40A(3) and were saved by Rule 6DD(e) and/or Rule 6DD(j) of the Income-tax Rules. The assessee had purchased silver from M/s. Dilipkumar Hirachand and 18 NRI passengers, which was later seized by the Directorate of Revenue Intelligence (DRI). The Customs Department issued a show-cause notice u/s 124 of the Customs Act, 1962, but the Collector discharged the notice and ordered the release of the seized silver. However, the CEGAT reversed this order, holding that the seized silver was not legally imported. The Assessing Officer, relying on the DRI and CEGAT's findings, concluded that the payment for the silver was made from unaccounted income and added Rs. 92,29,856 to the assessee's income.

2. Applicability of Section 40A(3):
The Assessing Officer alternatively held that the payment also deserved to be disallowed u/s 40A(3) because it was made in cash. The assessee contended that the payments were made through demand drafts, adjustments against dues on the sale of gold, and cash payments below Rs. 10,000, which complied with section 40A(3). The CIT(A) agreed with the Assessing Officer's view but ultimately held that the case was not for disallowance u/s 40A(3), rather it was an investment made out of unaccounted income.

3. Legitimacy of the Purchase Transactions:
The assessee argued that the purchase of silver was duly recorded in its books of account and that no cash payment was made out of unaccounted income. The CIT(A), however, found that the identity of the sellers could not be established and that the silver was acquired through illegal sources. The Tribunal noted that the purchase transactions were recorded in the books of account, and the DRI authorities did not dispute the genuineness of the transactions. The Tribunal found that the payments were made partly in cash and partly through the sale of gold, and there was no evidence that the payments were made from unaccounted income.

4. Burden of Proof Regarding Unaccounted Income and Cash Payments:
The assessee contended that the burden of proof lay with the department to show that the investment was made out of unaccounted income. The Tribunal agreed, stating that the department did not make any independent inquiry and relied solely on the findings of the Customs authorities. The Tribunal held that the Assessing Officer did not discharge the burden of proving that the payments were made from unaccounted income or that the payments shown by the assessee were bogus. The Tribunal concluded that the assessee had discharged its onus of proving the payments for the purchase of silver and no addition was warranted u/s 69/69C.

Conclusion:
The Tribunal deleted the addition of Rs. 92,29,856 made by the Assessing Officer and sustained by the CIT(A), allowing the appeal in favor of the assessee. The Tribunal also held that the provisions of section 40A(3) were not applicable as the department did not prove that the payments were made in cash exceeding the limits prescribed under the section.