2008 (9) TMI 940 - HC - Income Tax

High Court clarifies proof of origin required for income from diamond sales

Mahendra H Kothari Versus The Income Tax Officer

The High Court allowed the appeal under Section 260-A of the Income Tax Act, setting aside the Tribunal's order that treated income from diamond sales as ... - Issues involved: Appeal u/s 260-A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal confirming the treatment of transaction as unexplained investment u/s 69 of the Act.The appellant filed a return of income declaring total income and was selected for scrutiny. The assessing authority found the transaction regarding the sale of jewellery and diamonds not genuine, treating the profits as unexplained investment. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal confirmed parts of the order but differed on the treatment of diamond sales. The Tribunal held that the income from diamond sales cannot be considered unexplained investment. The appellant appealed under Section 260-A of the Income Tax Act, 1961.The substantial question of law was whether the finding that the income from the sale of jewellery was an unexplained investment was arbitrary due to non-consideration of whether the goods sold were the same as those declared under the VDIS Scheme. The Court referred to a previous decision and held that if the goods sold were proven to be the same as those declared under VDIS, then it would not be considered unexplained investment. The Court allowed the appeal, set aside the Tribunal's order, and remitted the matter for fresh consideration by the Income Tax Officer.This judgment highlights the importance of proving the origin of goods sold to avoid being classified as unexplained investment under Section 69 of the Income Tax Act, 1961. The Court emphasized the need for consistency in the declaration of goods to prevent disputes regarding the nature of transactions and tax liabilities.