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2012 (9) TMI 230 - AT - Income TaxAddition on account of undisclosed sources/unexplained cash credit against sale of VIDS 97 declared jewelery(diamonds) on 09.01.98 sum received through cheque - Revenue contended source of the packet of cut and polished diamonds remain unexplained on ground that diamonds declared under VDIS were embedded in the necklace, earrings etc. and were not loose diamonds also considered sale of jewelery to Kamal Gems and D.M. Corporation as sham nature of transactions alleged purchasers of diamond M/s D.M. Corporation and M/s Kamal Gems were not found at the time of investigation conducted by ADIT (Inv), Surat Held that - On bare reading of the report of ADIT(Inv), Surat dated 17.3.2010, it is observed that there is no specific fact showing that in the month of March 1998, there was no business in the name of M/s Kamal Gems in specific premises at Saiyedpura and of M/s D.M. Corporation at Ambika Society. There is also no mention about the fact that instead of aforesaid parties, any other firm/person or entity was using that premises in the month of March, 1998. Therefore, it is observed that the AO relied on the incomplete and ambiguous report submitted by ADIT(Inv), Surat and his findings that the assessee failed to substantiate the creditworthiness and genuineness of said purchasers cannot be sustained as the AO did not properly appreciate the evidence relevant to this fact. Accordingly, addition is deleted Decided in favor of assessee.
Issues Involved:
1. Disallowance of appeal addition of Rs.5,04,605 on account of undisclosed sources/unexplained cash credit. 2. Confirmation of addition related to the sale of jewelry to Kamal Gems and D.M. Corporation. Issue-Wise Detailed Analysis: 1. Disallowance of Appeal Addition of Rs.5,04,605 on Account of Undisclosed Sources/Unexplained Cash Credit: The assessee declared jewelry valued at Rs.2,82,587 and Rs.1,00,000 cash under the Voluntary Disclosure of Income Tax Scheme (VDIS), 1997. The jewelry was sold to Kamal Gems and D.M. Corporation, with total sale proceeds of Rs.5,04,605. The AO added this amount to the income of the assessee under section 68 of the Act, concluding that receiving sums through cheque or DD does not guarantee the creditworthiness of the purchaser. 2. Confirmation of Addition Related to Sale of Jewelry to Kamal Gems and D.M. Corporation: The CIT(A) confirmed the addition of Rs.5,04,605, citing discrepancies between the declared items under VDIS and the purchase invoices from Kamal Gems and D.M. Corporation. The invoices referred to "packets of cut and polished diamonds," while the VDIS declaration described the items as embedded in necklaces and earrings. The CIT(A) found the absence of detailed descriptions of the diamonds in the invoices as further evidence of the transactions' sham nature. The CIT(A) relied on the judgment of the Hon'ble Kerala High Court in ITO Vs Diza Holdings Pvt. Ltd., emphasizing that receipt of payment through cheque is insufficient without satisfactorily explaining the nature and source of the amount credited. The AR argued that the sale of diamonds should be considered genuine, as the weight of diamonds in carats matched the VDIS Valuation report and the purchase bills. The AR also cited the judgment of the Hon'ble Gujarat High Court in CIT vs M.K. Bros., asserting that payments for such purchases cannot be assessed as income from undisclosed sources without evidence indicating that any part of the funds returned to the assessee. The CIT(A) had deleted additions related to jewelry sold to M/s Bishan Chand Mukesh Kumar, following the ITAT's decisions in similar cases, including Ratan Mahipal and Mrs. Lilawati Mahipal. The AR contended that the same rationale should apply to the sale to Kamal Gems and D.M. Corporation. The AO relied on a report from ADIT (Inv.), Surat, indicating that Kamal Gems and D.M. Corporation were not found at the stated addresses during the investigation. The AR countered that the investigation occurred eight years after the transactions and did not conclusively prove that the businesses did not exist in 1998. The Tribunal observed that the AO did not provide material evidence showing that the sale proceeds were returned to the purchasers. The Tribunal also noted that the VDIS declaration was not contradicted by the AO and that the jewelry was physically transferred to the buyers, with sale proceeds received through banking channels. The purchasers confirmed the transactions and did not retract their confirmations. In conclusion, the Tribunal found the addition made by the AO and confirmed by the CIT(A) to be based on misinterpretation of evidence and unsustainable. The appeal of the assessee was allowed, and the addition of Rs.5,04,605 was deleted.
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