Appeal Dismissed: Tribunal Upholds CIT's Decision on Unexplained Investment Deletion

The addition of Rs. 8,38,25,960/- made by the Assessing Officer on account of unexplained unaccounted investment was deleted by the CIT(A)-XXXI, New Delhi. The Revenue's appeal against this deletion was dismissed by the Tribunal, which upheld the CIT(A)'s decision. The Tribunal found that the diamonds in question belonged to the companies managed by the assessee, which had filed returns of income with audited accounts. The Tribunal concluded that there was no evidence to support the claim that the seized diamonds represented the assessee's unaccounted investment.

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Issues Involved:
1. Deletion of addition of Rs. 8,38,25,960/- made by the Assessing Officer on account of unexplained unaccounted investment of the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 8,38,25,960/-:

The Revenue appealed against the order dated 14/10/2013 by the CIT(A)-XXXI, New Delhi, which deleted the addition of Rs. 8,38,25,960/- made by the Assessing Officer (AO) on account of unexplained unaccounted investment. The addition was based on the interception of Mr. Sunil Bhari at IGI Airport, New Delhi, who was found in possession of loose diamonds worth Rs. 19 crores. The diamonds were claimed to be imported by M/s RAS Minerals Pvt. Ltd. and RVM Impex Pvt. Ltd., companies managed by the assessee.

The AO questioned the genuineness of the transaction due to several reasons:

i) No books of accounts were found at the business premises of M/s RAS Minerals Pvt. Ltd. and RVM Impex Pvt. Ltd.

ii) No business premises were found functioning at the registered addresses in Surat.

iii) The assessee could not produce documentary evidence such as travel records, business correspondence, or transfer entries of the diamonds.

iv) The non-recording of the receipt of diamonds in the books of account suggested it was not stock-in-trade but an investment opportunity.

v) Admissions by associates of the assessee that they did not maintain books of accounts or file returns of income, and traded entirely in cash.

vi) Absence of formal documents like contracts, bank guarantees, or letters of credit for the import of diamonds.

vii) Variation in the valuation of diamonds by the Departmental Valuation Officer (DVO) and the import invoice suggested two sets of diamonds.

The CIT(A) examined the assessee's rebuttal and found that the AO had not clearly mentioned why the detailed explanations given by the assessee were unacceptable. The CIT(A) noted that the diamonds were imported and cleared by Customs only the previous night, and there was no time to pass the entries in the books of account. The CIT(A) also observed that no concrete evidence was provided to show that no books of account were found at the registered office premises of the two companies.

Regarding the genuineness of the transaction, the CIT(A) noted that the absence of correspondence with the exporting company could not be a reason for doubting the transaction when the assessee had explained that an employee had visited Hong Kong and struck the deal. The CIT(A) also found that the assessee's companies had done trade in diamonds before the date of search and had made payments through banking channels.

The CIT(A) further addressed the AO's doubt about two sets of diamonds, stating that there was no evidence to show that the diamonds mentioned in the import invoice were sold in the market or hidden elsewhere. The valuation difference could not be the basis for concluding that there were two different sets of diamonds. The CIT(A) reconciled the valuation and found an exact match between the different kinds of diamonds and their quantities.

The CIT(A) concluded that the diamonds belonged to the companies and not the assessee personally. The companies had filed returns of income with duly audited accounts, and the books of accounts were produced before the AO for verification. The CIT(A) deleted the addition, stating that no case was made out to hold that the seized diamonds represented the assessee's unaccounted investment.

The Tribunal upheld the CIT(A)'s order, agreeing that the diamonds found in possession of Mr. Sunil Bhari were the same as those imported by the two companies. The Tribunal noted that the companies were separately assessed to tax, and the turnover and trading of diamonds were accepted in the assessments under section 153C. The Tribunal found no reason to sustain the addition and dismissed the Revenue's appeal.

Order pronounced in the open Court on 25th October, 2017.

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