9911796707
TMI Blog2025 (1) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon are taken up for adjudication and decision rendered thereon shall apply mutatis mutandis for AY 2019-20 also except with variance in figures. 3. The assessee raised following concise grounds of appeal:- 1. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in assessing the income of the appellant vide order dated 30.09.2021 passed under section 143(3) r.w.s. 153A of the Income tax Act, 1961 ("the Act") at Rs. 160.24,64,000 as against income of Rs. 149,47,78,770 declared by the appellant. 2. That the CIT(A) erred on facts and in law in confirming the addition of Rs. 154,95,82,050, being gross consideration received on sale of diamonds, as unexplained credits under section 68 of the Act in place of long-term capital gains thereon of Rs. 144,46,86,075 being declared by the appellant in the return of income. 2.1 That the CIT(A) erred in not appreciating that sovereign/ statutory immunity granted to declaration made/ accepted under Income Declaration Scheme, 2016 ("IDS") could not be questioned and therefore, the addition was wholly without jurisdiction and bad in law. 2.2 That the CIT(A) erred in holding that gain arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried out on 27.01.2020 at the residence of one third party, viz., Sh.Yogendra Raj Singhvi (hereinafter referred to as "Sh. Singhvi") at his farm-house/ residence at Ajmer, Rajasthan, wherein statement of Sh. Singhvi was recorded under section 132(4) of the Act. In the return of income, the assessee had declared Long Term Capital Gains ("LTCG") of Rs. 144,46,86,075/- on transfer of cut and polished diamonds. 7. The assessee claimed to have sold these items in the year under consideration for a total amount of Rs. 154,95,82,050/-. The ld AO sought for the details in this regard from the assessee vide notice u/s 142(1) of the Act issued from time to time. In response to the said notice, the assessee filed all the requisite details available in its possession before the ld AO. It would be relevant to note that the assessee had declared diamonds under Income Declaration Scheme (IDS) 2016 vide chapter IX of Finance Act, 2016 by filing a declaration on 13.09.2016 of 12857.07 carats of rough diamonds. The assessee submitted that these diamonds declared were received as gift from grandfather and were held since 1994 and declared as such in the IDS Declaration. This declaration was made bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s bogus by the ld AO by adding it u/s 68 of the Act, consequentially the ld AO also added commission expenditure @ 0.18% of sale consideration u/s 69C of the Act in the sum of Rs 27,89,248/-. 10. The aforesaid action of the Ld AO was upheld by the ld CITA by observing that diamonds were not declared in any income tax or wealth tax return by the assessee earlier. 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 proceeded on a completely different premise to hold, without any cogent/ reliable basis, the same to be a bogus transaction. 11. The ld AR filed detailed written submissions before us and he drew our attention to the various facets covered thereon and rebutted the entire allegations of the lower authorities by facts and figures. Per Contra, the ld DR submitted that the ld CITA never held that the gains on sale of diamonds to be LTCG or STCG and that the ld CITA had merely commented about the declaration made by the assessee in IDS 2016 and the same cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would even come forward to declare the same in IDS 2016. This argument of the revenue is simply absurd and only indicates the pre-determined mind in order to reach the pre-determined destination of taxing the receipt of sale consideration by any means whatsoever. 14. It is a fact that assessee had got the rough diamonds processed by cutting, polishing etc from following 4 job workers in Surat which resulted in 2231.12 carats of processed diamonds:- (i) Rujal Anil Shah (HUF) - Prop. Aarushi Gems (ii) Nareshbhai Babulal Dhami (HUF) - Prop. Beena Impex (iii) Adesh Nareshbhai Dhami (HUF) - Prop. Niti Impex (iv) Nikunj N Kahar - Prop. Misty Enterprises 15. The fact that processing of rough diamonds were undertaken by the assessee in assessment year 2017-18 is duly borne out of the invoices in support of the payments made to the job- workers, confirmations filed by the job workers along with their respective ITRs, proof of actual payments made to the job-workers as reflected in the bank statement of the assessee. These documents were duly furnished by the assessee before the lower authorities which fact is not in dispute. 16. It is submitted that substantial portion of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that all the family members, in their separate statements, categorically and consistently confirmed the following fundamental facts, without any contradiction:- (a) That they were in possession of diamonds, which was inherited by them; (b) That the diamonds were declared under IDS 2016 and tax paid thereon; (c) That the diamonds were cut/ polished; (d) That the polished diamonds were sold resulting in taxable long-term capital gains, which were declared in the tax returns. 20. Now coming to the statement of Sh Kamla Kant Chaurasia, we find that the ld AO, in the impugned assessment order, has sought to draw adverse inference in respect of the very existence of the diamonds by placing reliance on statement dated 16.01.2020, of Sh. Kamla Kant Chaurasia (father of assessee) wherein he purportedly stated that he was not aware of the diamonds. The ld AR before us submitted that the aforesaid statement of Sh. Kamla Kant Chaurasia cannot be the basis for disputing the transactions due to the following reasons:- * He was non-resident for many years; * At the time of recording of statement, due to his old age coupled with ill-health and fading memory, was not in a position to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments made to the job-workers - entire payment was made through banking channels. 23. The details of contemporaneous documents filed by the assessee party wise in respect of 4 job workers for Assessment Year 2018-19 are as under:- (i) AarushiGems: * Copy of ledger account enclosed in Page 237 of Paper Book * Copy of bill/invoice & inspection memo enclosed in Pages 238 to 239 of Paper Book * Copy of bank statements from which payment was made enclosed in Page 240 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 241 to 246 of Paper Book (ii) Beena Impex: * Copy of ledger account enclosed in Page 247 of Paper Book * Copy of bills/invoices & inspection memo enclosed in Pages 248 to 251 of Paper Book * Copy of bank statements from where the payments were made enclosed in Page 252 of Paper Book * Copy of clarification dated 26.09.2021 along with acknowledgment filed in support of change of address of Niti Impex and Beena Impex enclosed in Pages 253 to 264 of Paper Book * Copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to retain the communication trail with the said parties. Further, communication by way of telephone calls, text messages and personal meetings cannot practically be documented as expected by the ld AO. Further, the assessee has provided all documents in support of the transaction in the form of copies of invoice, ledgers and payment trail to corroborate the genuineness of the transaction. (b) Allegation that the assessee failed to provide copy of bank statement in support of the payment trail. The aforesaid allegation is factually incorrect. It was emphatically submitted that the assessee had, vide submissions filed on various dates before the ld AO, duly furnished copy of bank statements wherein the payments made to the job workers was specifically covered as stated hereinabove. (c) Allegation that the assessee did not even recollect the names of the job workers in so far as the name of the parties stated during the course of statement was different from the details file during the course of assessment. It was submitted that as already explained above, the transaction was undertaken more than 3-4 years ago and the assessee could not have been expected to accurately remembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant extract of stock register; (iv) party-wise purchase and sale register (including PAN and address of the party); (v) detailed list of sundry debtors through whom funds were received for the purchase of diamonds along with bank statement and GST return (GSTR - 1); (vi) copy of ITR, computation of income, Tax Audit Report, audited financial statements along with copy of income tax returns; (vii) bank statements of accounts from where payments were made to the assessee; (viii) ledger account of parties to whom the diamonds were sold after purchasing them from the assessee along with their PAN and address. 27. The details of contemporaneous documents filed party wise in respect of sales made by the assessee during the year under consideration are as under:- (i) Garima Exports: * Copy of ledger account enclosed in Page 302 of Paper Book * Copy of purchase confirmation enclosed in Page 303 of Paper Book * Copy of bank statement in which the sale proceeds were received enclosed in Page 304 of Paper Book * Copies of KYC and business profile of the parties enclosed in Pages 305 to 309 of Paper Book * Details of Permanent Account Number (PAN) enclosed in Page 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls of PAN enclosed in Pages 735 to 736 of Paper Book * Copy of passport enclosed in Page 737 of Paper Book * Copy of Aadhar card enclosed in Page 738 of Paper Book 28. We find that the sale of diamonds made by the assessee to the aforesaid customers cannot be even remotely doubted in as much as those parties had directly responded to the notice issued u/s 133(6) of the Act by furnishing the contemporaneous documentary evidences as listed above. It is not the case of the revenue that the parties to whom the assessee had made sales are related to him in any manner whatsoever. Hence they are independent third parties and transactions were carried out with them at arm's length in the ordinary course of business. The assessee need not ascertain the financial capacities of these customers as he had not borrowed any loan or not received any share capital / premium from them. On the contrary, the assessee's interest would be only to receive the sale proceeds of diamonds from the said parties for the sales effected to them. 29. From the above, it could be seen that the existence of rough diamonds with the assessee together with the activity of processing of rough diamonds into cut and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even the cross - examination of these two parties which were sought for by the assessee. The ld AO fixed the date of cross examination of these two parties on 20.9.2021 without furnishing the full text of the statements recorded from them, on which date, the assessee's authorized representative was present and both the parties failed to appear before the ld AO. Hence these two parties, having become department's witnesses, failed to appear for cross-examination before the ld AO. Again on 21.9.2021, the assessee requested the ld AO to provide cross examination of these two parties after providing legible copy of statements recorded from them. Again another request was made by the assessee on 26.9.2021. Copies of the statements were provided to the assessee only on 10.11.2021 at the fag end of completion of assessment proceedings. The ld AO however mentioned that no further opportunity to cross-examine the above-named witnesses will be provided stating that the assessee had failed to avail the opportunity of cross-examination and due to time- barring nature of the matter. We have already dealt this aspect hereinabove that those two parties, being department's witnesses, had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , while computing capital gains, the period of holding should be construed accordingly. Thus, such diamonds shall fall within the definition of "long term capital assets" and consequently, "long term capital gains" shall arise on their transfer. We find that the ld CITA had relied on CBDT Circulars referred supra to treat the gains arising on sale of diamonds as short term capital gains. In this regard, we find that the Circulars had taken oscillating positions with regard 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. The 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. Reliance in this regard is placed on the decision of Hon'ble Supreme Court in the case of Commissioner of Customs vs Indian Oil Corporation Ltd reported in 267 ITR 272 (SC). The date of 1.6.2016 would be relevant only for the limited purpose of valuation of u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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