2010 (9) TMI 135 - HC - Income Tax

Long term losses on account of sale - assesses showed long term losses on account of sale of jewellery in their original returns of income filed - The said jewellery were earlier declared by the assessees under Voluntary Declaration of Income Scheme, 1997 - AO doubted the genuineness and existence of those two parties and the claimed transaction of purchasing of gold jewellery by them from the assesses - added the stated sale consideration in the income of the assesses Assessee showed that sale considerations were paid by buyer to the assesses through account payee cheques Held that - assesses had furnished all the necessary information supported with documents about the transactions and parties - It is also an undisputed fact that the assesses had paid tax, as directed by the department, while accepting their declaration made under VDIS, 1997 - no substantial question of law arises - present appeals being bereft of merit, are dismissed.

Issues:
1. Appeal filed by Income Tax Department challenging Tribunal's order.
2. Validity of long term losses on sale of jewellery.
3. Allegations of sham identities and bogus cash credits.
4. CIT(A)'s decision on the appeals.
5. Tribunal's dismissal of revenue's appeals.
6. Tribunal's evaluation of evidence on genuineness of transactions.
7. Violation of natural justice in relying on third-party findings.
8. Tribunal's reasoning for upholding CIT(A)'s decision.

Issue 1 - Appeal filed by Income Tax Department:
The Income Tax Department filed appeals under Section 260A of the Income Tax Act, 1961, challenging the Tribunal's order dated 7th October, 2009, for the Assessment Years 1999-2000 and 2000-2001.

Issue 2 - Validity of long term losses on sale of jewellery:
Respondents-assesses declared long term losses from the sale of jewellery, previously declared under VDIS. The AO initiated proceedings under Section 147, alleging sham identities and bogus cash credits, resulting in additions to the income of the assesses.

Issue 3 - Allegations of sham identities and bogus cash credits:
The AO held that the concerns involved were sham identities for introducing undisclosed income. The CIT(A) allowed the appeals of the assesses, but the revenue's appeals were dismissed by the Tribunal, leading to the present appeals.

Issue 4 - CIT(A)'s decision on the appeals:
The CIT(A) ruled in favor of the assesses, finding sufficient evidence of the genuineness of transactions and the existence of the parties involved.

Issue 5 - Tribunal's dismissal of revenue's appeals:
The Tribunal dismissed the revenue's appeals, prompting the Income Tax Department to challenge this decision, arguing that the sale of jewellery was a sham transaction.

Issue 6 - Tribunal's evaluation of evidence on genuineness of transactions:
The Tribunal examined the evidence presented by the assesses, including PANs, bank accounts, trade-tax assessment orders, and income tax returns of buyers, concluding that the transactions were genuine and supported by documentation.

Issue 7 - Violation of natural justice in relying on third-party findings:
The Tribunal criticized the AO for relying on findings of a third party without giving the assesses an opportunity to rebut or contradict those findings, deeming it a violation of natural justice principles.

Issue 8 - Tribunal's reasoning for upholding CIT(A)'s decision:
The Tribunal upheld the CIT(A)'s decision, emphasizing the assesses' provision of necessary information and documents, the payment through account payee cheques, and the inability to compel the concerned parties to appear before the AO, ultimately dismissing the appeals for lacking merit.

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