2008 (7) TMI 446 - AT - Income Tax

VDIS immunity covers only declared jewellery value; subsequent sales can be probed, s.68/s.69 burden on assessee

ITAT (DELHI-A) held that VDIS immunity covers only the declared existence/value of jewellery and does not automatically extend to subsequent sales; the ... Unexplained Investments Issues Involved:1. Whether the benefit of jewellery disclosed under VDIS 1997 extends to the sale of jewellery.2. Whether the Department is debarred from making further enquiry into the genuineness of the sale of jewellery disclosed under VDIS.3. Whether the assessee is required to prove the genuineness of the sale of jewellery disclosed under VDIS 1997 in the same manner as required u/s 68 or 69 of the Act.4. Validity of the notice issued u/s 158BC read with section 158BD.5. Applicability of section 68 to the sale proceeds of jewellery declared under VDIS.6. Whether the sale of jewellery declared under VDIS is genuine.Summary:Issue 1: Benefit of Jewellery Disclosed under VDIS 1997The Tribunal held that the immunity given by section 68 of the Finance Act, 1997 incorporating VDIS is limited to the extent that the existence of jewellery stands accepted and the amount credited in the books of the declarant to the extent of value of the jewellery so declared cannot be assessed as income of the declarant for any assessment year under any provision of the Income-tax Act including the provisions of section 68. This immunity, however, stops there and there is no provision in the scheme to extend the same further, either expressly or even by implication, to cover the sale of jewellery declared under VDIS also.Issue 2: Department's Enquiry into Genuineness of SaleThe Tribunal held that it is open to the Department to go into the genuineness of the transactions of sale of jewellery declared under VDIS and examine the same in accordance with the relevant provisions of the Income-tax Act. The Assessing Officer is not only empowered to go into the genuineness of the transaction of sale of jewellery declared under VDIS, but he is duty-bound to do so to ensure that the scheme is not misused by the declarants for any more benefits than what were intended to be given under the scheme.Issue 3: Proving Genuineness of Sale u/s 68 or 69The Tribunal held that the assessee is required to prove the genuineness of the sale of jewellery disclosed under VDIS 1997 in the same manner as required u/s 68 or 69 of the Act. The Tribunal emphasized that the burden of proof lies on the assessee to establish the genuineness of the sale transaction and the nature and source of the sale proceeds credited in the books of account.Issue 4: Validity of Notice u/s 158BC read with section 158BDThe Tribunal found that the notice issued u/s 158BC read with section 158BD was invalid as it did not comply with the statutory requirement of giving not less than 15 days for filing the return. The Tribunal also held that the satisfaction note required for initiating proceedings u/s 158BD was not recorded within the time frame set by section 158BE, rendering the proceedings invalid and void ab initio.Issue 5: Applicability of Section 68 to Sale Proceeds of JewelleryThe Tribunal held that section 68 is applicable to the sale proceeds of jewellery declared under VDIS. It emphasized that the burden of proof lies on the assessee to explain the nature and source of the sums credited in the books of account, including sale proceeds. The Tribunal rejected the argument that section 68 is not applicable where an asset is sold and the sale proceeds are credited in the books of account.Issue 6: Genuineness of Sale of Jewellery Declared under VDISThe Tribunal held that the evidence collected by the Revenue authorities was not sufficient to establish their stand that the jewellery transactions carried on by Bemco Jewellers Pvt. Ltd. were only paper transactions or bogus. The Tribunal found that the circumstances surrounding the case were not strong enough to justify the rejection of the assessee's plea as fantastic or outrageous. The Tribunal concluded that the transaction relating to the sale of jewellery in the case of Tejinder Singh, HUF, was genuine and deleted the addition made by the Assessing Officer under section 68.Conclusion:The Tribunal allowed the appeals of the assessees and dismissed the appeals of the Department, holding that the transactions of sale of jewellery declared under VDIS were genuine and the additions made under section 68 were not justified.