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TMI Blog2025 (1) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to the period of holding of assets which works contradictory to the existing provisions of the Act itself. Hence the provisions of the Act would prevail.
Explanation 1(i)(b) of Section 2(42A) of the Act clearly lays down the law regarding the period of holding of assets. Hence there is no need to place reliance on Circulars for this purpose. Either way, the Circulars are binding only on the revenue authorities and the same is not binding on the Tribunal.
Period of holding of diamonds need to be reckoned from Assessment Year 1994-95 in terms of provisions of the Act and accordingly the resultant gain on sale of diamonds would have to construed only as Long Term Capital Gains in the facts and circumstances of the instant case.
Gains on sale of cut and polished diamonds is to be construed as LTCG which had already been offered to tax by the assessee in the return of income and the same cannot be treated as unexplained cash credit u/s 68 of the Act in the facts and circumstances of the instant case.Ground Raised by the assessee are allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessment, having been completed/ made: (a) de-hors any incriminating material/ document found/ seized during search; (b) in gross violation of provisions of section 153D of the Act; is illegal, bad in law and void- ab-initio. 5. That on the facts and circumstances of the case and in law, the CIT(A) erred in dismissing the appeal ex-parte, by relying on extraneous material, without considering detailed written submissions, rejoinder and contemporaneous documents filed and without affording adequate opportunity of being heard, in gross violation of principles of natural justice. 6. Without prejudice, the lower authorities erred on facts and in law in: (a) assessing gross consideration on sale of diamonds of Rs. 154,95,82,050 as unexplained credit without allowing reduction/credit of Rs. 49,42,79,680 being amount already declared under IDS; and (b)without allowing credit/ reduction of tax of Rs. 22,24,25,856 on Rs. 49,42,79,680 already declared under the IDS. 7. That the CIT(A) erred in confirming levy of interest under section 234B of the Act. 4. Ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication. 5. Ground Nos. 2 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort. The assessee paid tax of Rs. 22,24,25,856/- on the IDS Declaration @45% on fair market value of diamonds declared thereon. This declaration made by the assessee under IDS 2016 was duly accepted by the ld. Pr. Commissioner of Income Tax (PCIT) and a certificate stood issued by the ld PCIT dated 07.10.2017 in Form 4 to the assessee. By this process, the declaration made by the assessee in IDS 2016 declaring 12857.07 carats of rough diamond had attained finality. 8. The assessee during the year under consideration sold processed i.e. cut/polished diamonds for a sum of Rs 154,95,82,050/- on which LTCG of Rs 144,61,64,063/- was duly offered to tax by the assessee in the return of income. The ld AO doubted the existence of rough diamonds with the assessee per se and proceeded to treat the sale consideration of cut and polished diamonds of Rs. 154,95,82,050/- as unexplained cash credits u/s 68 of the Act by making the following observations and allegations:- a) The assessee and his family members failed to establish the source of acquisition and existence of diamonds, which were processed and thereafter sold, gains in respect of which was declared in the return of income; b) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relationship with him and Sh Singhvi and further the customers to whom the sale of diamonds were made by the assessee were also not proved to be genuine. With these arguments, the ld DR heavily defended the orders of the lower authorities. 12. At the outset, we hold that the existence of rough diamonds with the assessee cannot be doubted at all as admittedly the assessee had made declaration fo 12857.07 carats of diamonds in IDS 2016 and a certificate in Form NO. 4 dated 7.10.2017 was issued by the ld PCIT admitting the same after ensuring that the assessee had paid due tax thereon in the sum of Rs 22,24,25,856/-. This Certificate in Form No. 4 is enclosed in Page 18 of the Paper Book. Either way, dehors the IDS 2016, it is a fact that the rough diamonds of 12857.07 carats of rough diamonds had been brought into the books by the assessee after making payment of taxes of Rs 22,24,25,856/-. 13. We hold that the statutory scheme of IDS declaration enacted by the Finance Act 2016 considered along with all subsequent clarifications (such as CBDT Circular No. 26 dt 30.6.2016, CBDT Circular No. 29 dt 18.8.2016 and Press Release dated 2.9.2016) clearly provides that IDS declaration is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account thereof was duly offered to tax in the return of income. The ld AR even placed on record the sale of processed diamonds made by the assessee in subsequent assessment years 2019-20 to 2020-21 and the assessee received total consideration of Rs. 323,30,50,550/- on sale of diamonds in assessment years 2018-19 to 2020-21. The details of LTCG tax paid on sale of those diamonds are tabulated hereunder:- Assessment year Sale Amount (Rs.) Taxable LTCG (Rs.) Tax paid on LTCG (Rs.) 2018-19 154,95,82,050 144,46,86,075 34,22,46,131 2019-20 106,21,64,750 97,80,50,623 23,39,49,709 2020-21 62,13,03,750 55,60,81,456 15,84,60,972 Total(Rs.) 323,30,50,550 297,88,18,154 73,46,56,812 17. Further we find that the assessee had substantiated the genuineness of sales made to 4 parties by furnishing the sale invoices, confirmations directly filed by the parties before the ld AO along with their respective ledger accounts, stock register, bank statements evidencing the credit on account of receipt of sale consideration, ITRs etc . 18. It is pertinent to note that assessee had acquired the rough diamonds by way of gift from grandfather and that the diamonds (both rough as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25.09.2021 which is enclosed in Pages 946 to 947 of the Paper Book; • The assessee was primarily in charge of managing the day-to-day financial affairs of the family and was solely involved in processing the rough diamonds and sale of cut and polished diamonds; • Other members of Chaurasia family in their respective statements recorded during search have confirmed the aforesaid facts. 21. In fact, findings of ld CIT(A) are self-contradictory as initially the existence of diamonds has been accepted and sale transaction also accepted to be genuine by holding that the gains accruing on sale of diamonds should be treated as short term gains, but thereafter proceeds on a completely different premise to hold, without any cogent/ reliable basis, the same to be a bogus transaction. We are in complete agreement with this argument of the ld AR that the statement of Shri Kamla Kant Chaurasia is not to be relied upon in the facts of the instant case as it is contrary to the cogent evidences placed on record by the assessee. 22. We find that the expenditure in respect of cutting and polishing of diamonds was undertaken by the assessee in the immediately preceding assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f letter dated 26.09.2021 filed by the assessee who apprised the ld AO that due to dilapidated conditions of the building, the office of Beena Impex had shifted, details of which are enclosed in Pages 983 to 993 of Paper Book (iii) NitiImpex: • Copy of ledger account enclosed in Page 271 of Paper Book • Copy of bill/invoice & inspection memo enclosed in Pages 272 to 273 of Paper Book • Copy of bank statements from which payment was made enclosed in Page 274 of Paper Book • Copy of clarification dated 26.09.2021 along with acknowledgement filed in support of change of address of Niti Impex and Beena Impex enclosed in Pages 275 to 276 of Paper Book • Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act - providing details of nature of business, address, transaction details with assessee and copy of ITRs enclosed in Pages 287 to 292 of Paper Book • Copy of letter dated 26.09.2021 filed by the assessee who apprised the ld AO that due to dilapidated conditions of the building the office of Niti Impex had shifted - enclosed in Pages 983 to 993 of Paper Book. (iv) Misty Enterprise: • Copy of le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld AO independently issued notices u/s 133(6) of the Act to the said parties, which, as a matter of fact, was duly responded to by the said parties confirming that they undertook job work in the nature of cutting, polishing of diamonds in the financial year 2016-17. (d) At pages 29-31 of the assessment order, the ld AO has made reference to Inspectors" report to allege that the three job workers namely: (i) Aarushi Gems, (ii) Niti Impex, and (iii) Beena Impex never existed at the stated premises. In this regard it was submitted that only limited extracts of the ex-parte Inspector's report have been reproduced in the assessment order and copy of the same has never been provided to the assessee till date, which was in gross violation of principles of natural justice, and the assessee is, therefore, unable to provide an effective rebuttal to the same. Even otherwise, factual rebuttal to the aforesaid allegation is specifically provided at Pages 1076 to 1156 of Paper Book, being the detailed submission filed before the ld CITA. 25. It is pertinent to note here that notices issued by the ld AO u/s 133(6) of the Act were not only served but also responded to by the job workers d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RTI) of the Act - providing copy of ledger accounts, transaction details, stock register, bank statement, financial statements, GST return, ITR, Ledger account of parties to whom the diamonds were sold after purchasing them from the assessee along with their PAN and address etc enclosed in Pages 319 to 417 of Paper Book. (ii) Gurudev Corp.: • Copy of ledger account enclosed in Pages 418 to 422 of Paper Book • Copy of purchase confirmation enclosed in Pages 423 to 449 of Paper Book • Copy of bank statement in which the sale proceeds were received enclosed in Pages 450 to 462 of Paper Book • Copies of KYC and business profile of the parties enclosed in Pages 463 to 467 of Paper Book • Details of PAN enclosed in Page 468 of Paper Book • Copy of Aadhar card enclosed in Page 469 of Paper Book • Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act - providing copy of ledger accounts, transaction details, stock register, bank statement, financial statements, GST return, ITR etc enclosed in Pages 470 to 589 of Paper Book. (iii) Yogi Diam: • Copy of ledger account enclosed in Pages 590 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monds to third party customers is proved beyond reasonable doubt by the assessee herein. 30. With regard to the search action conducted in the premises of Sh. Singhvi on 27.1.2020 and one Sh. Kawadia on 3.3.2020 wherein statements were recorded from them u/s 132(4) of the Act, the ld AO had sought to draw adverse inference on the assessee herein merely by placing reliance on the said statements, despite the fact that there is no data / document seized from them which in an way directly or indirectly incriminates the assessee herein. Infact Sh. Singhvi, a third party, had merely stated that he knew the assessee as an acquaintance in certain social gatherings and had no financial transactions with assessee. Further the ld AR pointed out that statement of Sh. Singhvi was recorded on 27.1.2020 during the course of search under duress / pressure and his only daughter's wedding was scheduled on 30.1.2020 and hence in order to complete the search proceedings, he at the end of his statement had stated that all transactions are bogus. But we find that soon after the marriage ceremonies were completed, Sh. Singhvi on 4.2.2020 itself i.e. within one week from the date of search, had retracte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the ld AO and no fault could be attributed on the part of the assessee thereon. Despite that fact, the ld AO had stated that cross-examination will not be provided to the assessee. For this reason also, no reliance in any manner whatsoever could be placed on the statements of these two parties. In view of this fact, we hold that there is absolutely no need to give any credence to the statements recorded from these two parties and no adverse inference in any manner whatsoever could be drawn on the assessee herein, using those statements. Accordingly, the various other arguments advanced by the ld AR and ld DR before us about the veracity of the contents in the statements of these two parties, need not be gone into. 33. As stated hereinabove, the existence of rough diamonds, processing of rough diamonds into cut and polished diamonds and sale of cut and polished diamonds had been proved by the assessee beyond reasonable doubt with contemporaneous documents in the instant case. The assessee had declared the gains arising on sale of diamonds as LTCG in the return of income. The ld CITA vide para 7.12 at page 31 of impugned order dated 31.10.2023, contrary to the primary allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the same. That date cannot be considered as a relevant date for the purpose of reckoning the period of holding of assets. Hence we hold that the period of holding of diamonds need to be reckoned from Assessment Year 1994-95 in terms of provisions of the Act and accordingly the resultant gain on sale of diamonds would have to construed only as Long Term Capital Gains in the facts and circumstances of the instant case. 35. In view of the aforesaid observations, we hold that the gains on sale of cut and polished diamonds is to be construed as LTCG which had already been offered to tax by the assessee in the return of income and the same cannot be treated as unexplained cash credit u/s 68 of the Act in the facts and circumstances of the instant case. Accordingly, the Ground Nos. 2 to 2.2. raised by the assessee are allowed. 36. In view of our decision for Ground Nos. 2 to 2.2. above, the Ground No.3 raised by the assessee requires to be allowed as there is no question of treating the sale proceeds of diamonds as accommodation entries warranting incurrence of commission expenditure. Accordingly, the Ground No. 3 raised by the assessee is allowed. 37. No arguments were advanced by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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