Genuine diamond sales and holding period rules led to deletion of unexplained cash credit and commission additions.

The Tribunal held that the diamonds' existence, processing, and sale were supported by disclosure scheme declarations, tax payments, invoices, ledger accounts, bank records, stock records, and third-party confirmations, so the sale proceeds could not be treated as unexplained cash credits and the commission claim was not sustainable. It further held that, because the diamonds were acquired by gift from the previous owner, the holding period had to be computed under Explanation 1(i)(b) to section 2(42A), and the disclosure scheme date did not control capital gains classification. The additions under sections 68 and 69C were deleted, and the receipts were taxable, if at all, as long-term capital gains already declared.

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Issues: Whether the additions made under sections 68 and 69C in respect of sale consideration of diamonds and alleged commission expenditure were sustainable, and whether the receipts from sale of the diamonds were liable to be treated as long-term capital gains.

Analysis: The Tribunal noted that the existence of the diamonds, their processing into cut and polished diamonds, and their subsequent sale stood supported by the declarations under the Income Disclosure Scheme, accepted tax payments, invoices, ledger accounts, bank statements, confirmations, stock records, and replies received from job workers and purchasers in response to notices under section 133(6) of the Income-tax Act, 1961. It further held that the period of holding had to be computed in accordance with Explanation 1(i)(b) to section 2(42A) of the Income-tax Act, 1961, because the diamonds had been acquired by gift from the previous owner, and that the relevant date under the disclosure scheme did not govern holding period for capital gains. The Tribunal also found no basis to treat the sale proceeds as unexplained cash credits or to sustain commission expenditure, as the sales were genuine and the evidentiary record rebutted the Revenue's objections.

Conclusion: The additions under sections 68 and 69C were deleted and the sale proceeds were held taxable, if at all, as long-term capital gains already declared by the assessee.

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