2009 (7) TMI 2 - HC - Income Tax

Unaccounted Income - Cash Credit - In the return of income filed for A.Y. 1998-1999 the assessee claimed to have sold the said jewelery declared under VDIS 1997 thereby earning long term capital gains amounting to Rs.1, 75, 520/-. The said return was processed under Section 143(1)(a) of the Act on 23-7-1999. - CIT(A) and confirmed the addition of 10, 35, 562/- as non-existence of diamond jewellery allegedly purchased and the cash deposits made in the bank accounts before issuing cheques to various parties - tribunal set aside the addition - tribunal decision uphold - revenue petition rejected.

Summary

Issues Involved:
1. Justification of ITAT in deleting the addition of Rs.10,35,562/- as unaccounted income from the sale of jewelry declared under VDIS 1997.
2. Evaluation of the statement of confession by Mr. Vishnudatta Trivedi and its corroborative evidence.

Issue-wise Detailed Analysis:

1. Justification of ITAT in Deleting the Addition of Rs.10,35,562/-:
The assessee, a dealer in diamonds, declared diamond jewelry under the Voluntary Disclosure of Income Scheme (VDIS), 1997, which was accepted and certified by the department. The jewelry was claimed to be sold to M/s. Dhananjay Diamonds for Rs.10,35,562/-, earning long-term capital gains. Initially, this was accepted in the original assessment. However, during reassessment, the AO added the entire amount as undisclosed income based on Mr. Trivedi's statement that the transactions were merely accommodation entries, not actual business transactions. The ITAT, after considering the evidence and Mr. Trivedi's retraction of his statement, found that the assessee had successfully shown the existence of the jewelry, the sale, and the consideration received. The Tribunal's decision was based on the appreciation of evidence, including the valid VDIS certificate, which confirmed the existence of the jewelry.

2. Evaluation of the Statement of Confession by Mr. Vishnudatta Trivedi:
Mr. Trivedi initially confessed that his business transactions were accommodation entries. However, he retracted this statement shortly after, claiming the transactions were genuine. The Tribunal noted that his retraction was supported by his participation in reassessment proceedings, where he confirmed the purchase of jewelry from the assessee. The Tribunal found no independent and cogent evidence to corroborate Mr. Trivedi's initial confession. The AO failed to link the cash deposits in Mr. Trivedi's bank account to the assessee. The Tribunal concluded that the AO's decision was based on conjectures and lacked independent evidence. The Tribunal's decision to accept the assessee's claim was deemed reasonable as the VDIS certificate was valid, and the sale transaction was accepted by Sales Tax Authorities.

Conclusion:
The High Court upheld the Tribunal's decision, dismissing the revenue's appeal. It was held that the Tribunal's findings were based on a thorough evaluation of evidence, and the retracted statement of Mr. Trivedi could not be relied upon without corroborative evidence. The VDIS certificate confirmed the existence of the jewelry, and the sale transaction was valid. The appeal was disposed of in favor of the assessee, with no costs.