2023 (5) TMI 1431 - AT - Income Tax

Assessee wins Section 68 addition case as revenue fails to prove jewelry sale was bogus accommodation entry

Smt. Nirmal Uppal Versus DCIT, Central Circle-7 New Delhi

The ITAT Delhi ruled in favor of the assessee regarding addition u/s 68 for sale of jewelry reported as long-term capital gain. The AO rejected the ... Addition u/s 68 - sale of jewelry as a long-term capital gain as bogus - AO shows that the fact of sale of jewellery has been out rightly discarded and rather the explanation of this transaction of sale of jewelry has been taken as the admission of facts with regard to the alleged accommodation entry - HELD THAT:- AO without trying to make any further inquiries from the assessee to ascertain the truthfulness of her holding of the jewellery proceeded to out rightly discard the explanation. Admittedly in the alleged incriminatory material the name of assessee is not reflected and based upon some dummy name she has been connected to the transactions. In the statement of Mr. Parul Ahluwalia or any other witness also there is no specific mention of the transaction with assessee, which has been made foundation for holding she was real beneficiary. The assessee was required to give explanation of the reasons for receiving the credit entry in her bank which she has given on the basis of the invoice issued by the JBL. Assessee has reported the sale of jewelry as ‘Long term capital gain’, to discredit the same and to connect assessee with the pseudonymous entries of cash, some evidence or circumstance based on preponderance of probability was required to be shown by Ld. AO, then mere presumption. What entries JBL was making in accounts is not conclusive against the assessee. May be the Gold purchased was not accounted in stock by JBL and it was merely reflected as cash received. Assessee was not under onus to prove the entries of JBL. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the addition of Rs. 27,42,000/- to the assessee's income under sections 68 and 69C of the Income Tax Act, 1961 was justified.Whether the penalty imposed under section 271(1)(c) for concealment of income was valid.Whether the proceedings initiated under section 153C were lawful and appropriate.Whether the assessee's explanation regarding the sale of jewelry as a long-term capital gain was credible and adequately supported by evidence.Whether the tax authorities erred in treating the transaction as an accommodation entry and not as a legitimate sale of jewelry.ISSUE-WISE DETAILED ANALYSIS1. Addition under Sections 68 and 69CRelevant legal framework and precedents: Sections 68 and 69C of the Income Tax Act deal with unexplained cash credits and unexplained expenditure, respectively. The burden of proof lies on the assessee to explain the nature and source of such credits or expenditures.Court's interpretation and reasoning: The Tribunal found that the assessee, a former Central Government employee, had reported the sale of jewelry as a long-term capital gain. The explanation provided by the assessee was supported by an invoice from Jindal Bullion Ltd. (JBL). The Tribunal noted that the Assessing Officer (AO) did not conduct further inquiries to verify the assessee's claim and instead relied on presumptions.Key evidence and findings: The Tribunal highlighted that the assessee's name did not appear in the incriminating material, and the connection to the transactions was based on a pseudonymous entry. The Tribunal emphasized the lack of direct evidence linking the assessee to the alleged accommodation entry.Application of law to facts: The Tribunal concluded that the AO failed to substantiate the claim that the cash credits were unexplained. The explanation provided by the assessee regarding the sale of jewelry was credible, and the entries in JBL's accounts were not conclusive against the assessee.Treatment of competing arguments: The Tribunal distinguished the judgments relied upon by the Department Representative (DR) as being factually different from the present case.Conclusions: The Tribunal held that the addition under sections 68 and 69C was not justified and allowed the appeal in ITA no 1955/DEL/2022.2. Penalty under Section 271(1)(c)Relevant legal framework and precedents: Section 271(1)(c) imposes a penalty for concealment of income or furnishing inaccurate particulars of income. The penalty is contingent upon the assessee's failure to substantiate their explanation.Court's interpretation and reasoning: The Tribunal found that the penalty was imposed based on the addition under sections 68 and 69C, which had been overturned. The Tribunal noted that the nature of the transaction was debatable, and the assessee had provided a reasonable explanation.Key evidence and findings: The Tribunal observed that the assessee had declared the transaction as a long-term capital gain, and there was no concealment of income.Application of law to facts: The Tribunal concluded that the penalty for concealment was not warranted as the addition itself was not sustainable.Treatment of competing arguments: The Tribunal dismissed the arguments in favor of the penalty, emphasizing the lack of concealment.Conclusions: The Tribunal allowed the penalty appeal, concluding that the penalty under section 271(1)(c) was not justified.3. Legitimacy of Proceedings under Section 153CRelevant legal framework and precedents: Section 153C pertains to assessments of income in cases where documents or assets belonging to a person other than the person searched are seized.Court's interpretation and reasoning: The Tribunal found that the proceedings under section 153C were initiated without adequate basis, as the material seized did not directly implicate the assessee.Key evidence and findings: The Tribunal noted the absence of the assessee's name in the incriminating material and the reliance on a pseudonymous entry to connect the assessee to the transactions.Application of law to facts: The Tribunal concluded that the initiation of proceedings under section 153C was inappropriate given the lack of direct evidence.Treatment of competing arguments: The Tribunal dismissed the arguments supporting the initiation of proceedings under section 153C, emphasizing the need for direct evidence.Conclusions: The Tribunal held that the proceedings under section 153C were not justified.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'What entries JBL was making in accounts is not conclusive against the assessee. May be the Gold purchased was not accounted in stock by JBL and it was merely reflected as cash received.'Core principles established: The Tribunal emphasized the importance of direct evidence and the need for the Revenue to substantiate claims of unexplained cash credits and expenditures. The Tribunal also highlighted the requirement for a reasonable explanation from the assessee, which, if provided, should be given due consideration.Final determinations on each issue: The Tribunal allowed the appeal against the addition under sections 68 and 69C, overturned the penalty under section 271(1)(c), and found the proceedings under section 153C to be unjustified.