TMI Blog2002 (5) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer had during the course of assessment proceedings, collected all the information relating to the purchases of Diamonds from the Income-tax Department, Surat/Mumbai which revealed that the transactions were genuine and therefore erred in confirming the addition of Rs. 51,92,750. 5. The learned CIT(A)-V, Hyderabad, erred in not appreciating the evidence placed by the appellant relating to the transactions of Sale of Diamonds to parties at Surat. 6. The learned CIT(A)-V, Hyderabad, has confirmed the addition of Rs. 51,92,750 merely on surmise and suspicion which is totally contrary to the facts and evidence on record. 7. The learned CIT(A)-V, erred in confirming the appellant's share of Agricultural Income of Rs. 3,75,000 from M/s. Basanth Farms for Rate purposes when neither the Income-tax Act nor the Rules provide for such aggregation. 8. Any other ground(s) that may be urged at the time of hearing." 2. The assessee is an individual. Ground Nos. 1 to 6 relate to addition of Rs. 51,92,750 under section 68 of the Income-tax Act, 1961. The relevant facts are as follows. 3. For the assessment year 1998-99, the appellant submitted a return of income di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition of Rs. 51,92,750 being the sale value of diamonds sold at Surat treated as unexplained credit and added under section 68 of the Income-tax Act. 4. Apart from the above, the assessee is a partner in the agricultural firm of M/s. Basant Farms. The appellant's share from this partnership firm was Rs. 3,75,000 which was aggregated for rate purposes. The appellant disputes the aggregation of agricultural income earned from the partnership firm of Basant Farms at Rs. 3,75,000 on the ground that the income cannot be aggregated as the share income from the firm is exempted and also the rules relating to aggregation of agricultural income are not applicable to share income earned from agricultural farms. 5. Aggrieved by the assessment order dated 30-3-2001, the assessee has filed an appeal before the Commissioner (Appeals) who confirmed the order of the Assessing Officer on the aforesaid two issues. Aggrieved by the order of the Commissioner (Appeals), the assessee has filed the present appeal on the grounds mentioned above. 6. Sri K.C. Devdas, Chartered Accountant, learned authorised representative of the assessee, took us through the assessment order and stated that the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submission that the noting in the return of income that the sale of diamonds took place at Daman flew from a mistake as to the adoption of the place as M/s. Shukra Jewellers had their offices at Surat, Daman and Mumbai. M/s. Shukra Jewellers had confirmed that they had purchased the diamonds at Surat, he added. 8. As regards the finding of the Assessing Officer that the assessee could not have removed the diamonds from the gold jewellery, the learned authorised representative submitted that the fact that the diamonds were separated from gold was not disputed as the gold and diamonds were sold separately and the sale proceeds of gold were accepted by the Department. He also submitted that the Assessing Officer examined the Expert jeweller behind the back of the appellant and the examination of the expert revealed that any person could remove the diamonds, but he ran the risk of reduction in value to the extent of breakage. Therefore, he submitted that the appellant took the risk of removal of diamonds and was successful and therefore the finding that the appellant could not have removed the diamonds flew from surmise and suspicion. 9. As regards the observation regarding hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on these dates and that these statements were filed before the lower authorities. The authorised representative also brought to our notice that the dated initials of 15-12-1997 in relation to payment to Ashoka Distributors, which were made much before that date, was for the purpose of making payment on that date. He also filed necessary data at page 130 of the paper book wherein the payment has actually been made on 15-12-1997 to Ashoka Distributors and the appellant was not in Hyderabad on 15-12-1997. Evidence in this direction was filed in the form of air tickets, hotel bills to prove that the appellant was not in Hyderabad on 15-12-1997. Therefore, on this ground also, the learned authorised representative of the assessee submitted that the addition could not be made. 12. Elaborating further, the learned authorised representative stated that M/s. Shukra Jewellery Ltd. had in their letter of 19-2-2001 addressed to the Dy. Commissioner of Income-tax, Circle 2(1), Hyderabad, which was available much before the assessment order was passed, had confirmed the entire transaction and also replied to the various questions asked by the Assessing Officer in his letter dated 16-2-2001. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 18-3-1998 issued by Standard Chartered Bank. He submitted that while the payment to M/s. Orchids Restaurant on 22-2-1998 by the appellant was in the late hours of 22-2-1998 and that the appellant was actually at Mumbai and Surat on 22-2-1998 and the dates preceding 22-2-1998 and had come to Hyderabad in the late hours of 22-2-1998 and was at Orchids in the late hours of the night and, therefore, it cannot be presumed that he was not at Surat on 22-2-1998. As regards the date 15-3-1998, when the diamonds were sold, the appellant was actually at Salem according to the credit card statement. The appellant had stated that the sale of jewellery in the family started from 3-12-1997 and in response to query No. 128 the appellant had stated that on most of the dates the appellant was at Surat thereby meaning that it was not necessary for the appellant to be at Surat at all times. 14. As regards the sale of diamonds on 25-3-1998, the learned authorised representative submitted that neither the Assessing Officer nor the Commissioner (Appeals) had brought on record any statement or evidence to show that the appellant was in Hyderabad on 25-3-1998. Therefore, he submitted that the observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en from the Bank statements of Shukra Jewellers and the onus the department had to discharge about the genuineness of the transaction was on the contrary discharged by the appellant, and therefore, the provisions of section 68 are not applicable to the transaction. The learned authorised representative relied on the following case laws for the propositions canvassed by him : 1. S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.). 2. Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723 (Bom.). 3. Balurghat Transport Co. Ltd. v. Asstt. CIT [1993] 63 TTJ (Cal.) 302. 4. Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 (Pat.). 5. CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 (SC). 6. Umacharan Shaw Bros. v. CIT [1959] 37 ITR 271 (SC). 7. Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344 (Pat.). As regards the case laws relied on by the Commissioner (Appeals), the learned authorised representative submitted that in the case of CITV. Precision Finance (P.) Ltd. [1994] 208 ITR 465(Cal.), the facts of the case and the decision were distinguishable as the appellant in the case before us had proved the identity of M/s. Shukra Jewellers, the genuineness of the transaction as also the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amage and, therefore, the very existence of diamonds was doubtful. The learned departmental representative further submitted that the appellant had submitted that he did not believe anyone for the removal of diamonds and therefore it was strange that he could have left the diamonds worth Rs. 51,92,750 with Shukra Jewellers and to receive the payment at a later date. He further submitted that in response to query No. 81 at page 61 of the appellant's paper book, the appellant had stated that he took only about 30-60 minutes to sell the diamonds and it was not probable that the transaction could have been completed on such a fast track. 21. The learned departmental representative further submitted that the appellant was at Hyderabad on 22-2-1998, one of the dates of sale, and he could not have been at Surat as the flight leaves Hyderabad at about 8.30 A.M. and having regard to the travelling time taken after alighting at Mumbai, checking time in hotels, the assessee could not have undertaken the journey from Mumbai to Surat and come back to Hyderabad the same day to be in Orchid Restaurant at Hyderabad. He, therefore, submitted that the appellant was not at Surat on 22-2-1998 to sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shukra Jewellers were not at Surat but only at Mumbai and that the appellant could not have carried the diamonds of such high value disregarding police action and theft interference and, therefore, the sale of diamonds was a fabricated story and that the provisions of section 68 were rightly applied. He also placed reliance on the judgment of the Andhra Pradesh High Court in the case of R.B. Mittal v. CIT [2000] 246 ITR 283, for the proposition that the burden of proof for cash credits is on the assessee to prove its genuineness and creditworthiness of the parties. 24. The learned authorised representative of the assessee, in his rejoinder, at the outset submitted that all the documents filed in the paper book of the department from pages 9 to 21 were not put to the appellant and, therefore, it is material which is being placed for the first time before the Tribunal. Without prejudice to the aforesaid submission, the learned authorised representative submitted that as far as the question of the appellant being at Surat on the dates of sale of diamonds is concerned, the submissions were already made by him and that as regards the withdrawal of amount on 25-3-1998 by Sri Harish Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand found at pages 17 to 19 of the Revenue's paper book was also not relevant to M/s. Shukra Jewellers. In fact, a perusal of para 5 at page 16 of the paper book shows that the DCIT, Surat, had clearly stated these facts. Therefore, he submitted that nothing turns on this correspondence as they were general and internal in nature and there is no specific information relating to Shukra Jewellers with whom the appellant had business transactions. 27. Commenting on page 21 of the paper book filed by the learned departmental representative, the learned authorised representative of the appellant stated that the letter dated 5-3-2001 was addressed by the DCIT, Surat, to DCIT, Hyderabad, in which he gave a generalised statement and stated at paragraph 6 that M/s. Shukra Jewellers were at Mumbai and, therefore, the jurisdiction was not with DCIT, Surat. He, therefore, submitted that the department has not discharged the onus as regards the genuineness of the transaction of the appellant with M/s. Shukra Jewellers. As regards the postal endorsement in respect of a letter addressed to Shukra Jewellers Ltd. Surat, which was returned, the learned authorised representative submitted that Shu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum of Rs. 51,92,750 representing the sale of diamonds to Shukra Jewellers, Surat, cannot be sustained for the reasons stated below. 30. It is an admitted fact that the appellant had declared gold and jewellery under the VDIS 1997 and it was accepted by the Department by issue of necessary certificate in accordance with the said scheme. It is also a fact that the gold and diamonds were sold separately. It is also an admitted fact that the sale of gold which was separated from the diamonds was made for Rs. 4,59,979 at Hyderabad and this sale has been accepted. The fact remains that the diamonds were separated. As regards the sale of diamonds to Shukra Jewellers, Surat, we find from the material evidence placed before us that the identity of the party has been established, the transaction is genuine and the creditworthiness of Shukra Jewellers has been proved beyond doubt by the assessee. The bank accounts of M/s. Shukra Jewellers which were collected by the Assessing Officer showed that the amounts were received by account-payee DDs from Mumbai. The DDs were taken by Shukra Jewellers and sent to the appellant which were credited in the appellant's bank account and used for bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... response to question No. 128 that he was at Surat on most of the dates and not necessarily on all the dates. In view of the fact that preceding the date of 15-3-1998, there were sales of diamonds on 3-12-1997, 8-12-1997, 16-12-1997 and 24-1-1998 of other family members of the appellant, we accept the plea of the appellant that the sale of diamonds on 15-3-1998 was genuine. 34. As regards the sale of diamonds on 25-3-1998, it has been the contention of the revenue that the appellant was at Hyderabad on 25-3-1998 as he withdrew a cheque on 25-3-1998 and this was debited in the bank account of M/s. Neeru Textiles, Hyderabad. We have perused the statement and the rejoinder of the appellant. We have verified the bank statement and found that the sum of Rs. 5,00,000 was not drawn on 25-3-1998 but was credited to the bank account of M/s. Neeru Textiles and it is a transfer entry on 25-3-1998 from the bank account of Harish Kumar (Ind.) in State Bank of India to the bank account of M/s. Neeru Textiles and, therefore, the contention of the Revenue that the appellant was at Hyderabad on 25-31998 is not correct. 35. As regards letters filed by the learned departmental representative at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction and answered the questions raised by the Assessing Officer. The purchase of diamonds was reflected in the Stock Register maintained by Shukra Jewellers. The payments were made by DDs from Mumbai. The facts that the appellant himself removed the diamonds at his own risk and that the payments were received a month after handing over of the diamonds which was again a risk taken by the appellant, cannot be a ground to hold that the transactions of sale of diamonds were not genuine. The initials placed on the business purchase invoices of M/s. Neeru Textiles, in which the appellant is a partner, were the dates meant-for payment and the endorsements were made earlier. This had been demonstrated by the appellant with documentary evidence. We hold that in respect of huge deposits of amounts in the bank account of Shukra Jewellers, the appellant cannot be called upon to comment on the same as the department ought to have examined Shukra Jewellers as summons under section 131 was issued. The proceedings thereafter have not been placed before us by the Revenue. 38. Thus, the identity of, Shukra Jewellers, genuineness of the transaction and creditworthiness of Shukra Jewellers have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieving the transaction of sale of diamonds without bringing in any evidence to the contrary. 40. The Honourable Supreme Court in CIT v. Noorjahan (PK.) (Smt.) [1999] 237 ITR 570, held that the discretion postulated in section 69 before making the addition has to be judiciously exercised. The provisions of section 68 are in pari materia with section 69. Section 68 also used the word "may" and, therefore, before making an addition under section 68, the Assessing Officer has to exercise his discretion judiciously. Applying the aforesaid tests, we find that it is not so. In spite of the facts pointing in the direction of genuineness and identity of Shukra Jewellers and their creditworthiness not being in doubt, the addition has been made on presumptions, surmises and suspicions and, therefore, the judgment of the Supreme Court applies to the facts of the present case. We, therefore, hold that the Assessing Officer has erred in making the addition of Rs. 51,92,750 under section 68 of the Income-tax Act, 1961. 41. We find that the case laws relied on by the learned departmental representative are all distinguishable on facts and do not apply to the facts of the appellant's case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credits. We have already held that the onus cast on the appellant to prove the genuineness of the transaction and the creditworthiness of Shukra Jewellers has been discharged by the appellant in the form of Shukra Jewellers directly confirming the genuineness of the transaction to the Assessing Officer vide their letter dated 19-2-2001 and their creditworthiness has been established from their bank accounts collected by the Assessing Officer. Therefore, the decision of the Honourable High Court of Andhra Pradesh, far from helping the cause of the Revenue, supports the claim of the assessee that the transaction is genuine. 44. Having regard to the facts of the present case and having perused all the evidences and paper books placed before us and after considering all the legal decisions on the subject, we hold that the Assessing Officer was not justified in treating the transaction of sale of diamonds of Rs. 51,92,750 with M/s. Shukra Jewellery Ltd. as not being genuine and, therefore, erred in adding the sum of Rs. 51,92,750 under section 68 of the Income-tax Act, 1961. We, therefore, delete the addition of Rs. 51,92,750. 45. As regards the ground relating to aggregation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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