TaxTMI 
TaxTMI 
2002 (5) TMI 218
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.... of Rs. 51,92,750. 4. The learned CIT(A)-V, Hyderabad, failed to note that the Assessing Officer had during the course of assessment proceedings, collected all the information relating to the purchases of Diamonds from the Income-tax Department, Surat/Mumbai which revealed that the transactions were genuine and therefore erred in confirming the addition of Rs. 51,92,750. 5. The learned CIT(A)-V, Hyderabad, erred in not appreciating the evidence placed by the appellant relating to the transactions of Sale of Diamonds to parties at Surat. 6. The learned CIT(A)-V, Hyderabad, has confirmed the addition of Rs. 51,92,750 merely on surmise and suspicion which is totally contrary to the facts and evidence on record. 7. The learned CIT(A)-V, erred in confirming the appellant's share of Agricultural Income of Rs. 3,75,000 from M/s. Basanth Farms for Rate purposes when neither the Income-tax Act nor the Rules provide for such aggregation. 8. Any other ground(s) that may be urged at the time of hearing." 2. The assessee is an individual. Ground Nos. 1 to 6 relate to addition of Rs. 51,92,750 under section 68 of the Income-tax Act, 1961. The relevant facts are as follows. 3....
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.... Surat. 14,57,750 3. Diamonds 15-3-1998 Shukra Jewellers, Surat. 18,23,170 4. Diamonds 25-3-1998 Shukra Jewellers, Surat. 19,11,830 --------- Total sale value of Diamonds: &....
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....t Surat. (2) The gold jewellery owned by him and his family members consisted of gold and diamonds. The assessee stated that he had removed the diamonds from the gold jewellery personally with the help of his family members is not acceptable for the reason that this particular job can be done only by a professional goldsmith. If this is not done by professional goldsmith, there is every possibility of damage to the precious diamonds which may entail heavy loss of value when cost of separation of diamonds from gold jewellery is very negligible. (3) The diamonds worth over Rs. 50 lakhs were handed over to total strangers without receiving a single pie except for a purchase invoice, when the assessee did not trust at Hyderabad in the matter of separation of diamonds. (4) For the sales effected at Surat, the payments came in the form of demand drafts purchased at Mumbai. The sale consideration was paid in instalments, Perusal of the bank accounts copies of the diamond merchants reveal that they did not have sufficient funds to make the payments for the diamonds purchased on the said date. (5) On the days when the assessee was supposed to be at Surat to effect the sale of di....
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....act that the diamonds were handed over and the remittances were received at a later date cannot be a ground to dispute the sale of diamonds. 10. As regards the finding of the Assessing Officer regarding the sales being effected at Surat and the payments coming in from Mumbai, the learned authorised representative submitted that Shukra Jewellers had offices at Surat and Mumbai and, therefore, the payments were made at Mumbai. As regards the finding in relation to bank account copies of the diamond merchants that they did not have sufficient funds to make the payments for the diamonds purchased on the respective dates, the authorised representative submitted that these bank accounts were collected behind the back of the assessee and that the assessee was not aware of the position; at any rate, M/s. Shukra Jewellers should have been called upon to explain the sources of funds and the appellant cannot be called upon to prove the source for source. 11. As regards the contention of the Assessing Officer that when the appellant was supposed to be at Surat to effect the sales of diamonds, it was proved that he was in Hyderabad with reference to documentary evidence available in the f....
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....r, sales tax particulars, and confirmed that the payments were made by demand drafts and through regular banking channels. To a query as to the reason for not issuing regular printed bills, they had replied that this was their regular practice and also submitted the copies of their bank statements from where the payments were made to the appellant. In short, they confirmed the entire transaction as genuine and the demand drafts that emanated from Mumbai clearly bear the name of Shukra Jewellers as the remitter as can be seen from the photostat copy of the DD for Rs. 5 lakhs at page 121 of the assessee's paper book. The learned authorised representative also stated that the entire DD application forms were taken and signed by Shukra Jewellers who had confirmed the payment and, therefore, there was no reason to disbelieve the sale of diamonds. 13. The learned authorised representative further submitted that the appellant had confirmed in reply to question No. 128 that on most of the dates he was at Surat. He further stated that the jewellery in the case of the appellant was sold on 22-2-1998, 15-3-1998 and 25-3-1998. Taking each of these dates, the learned authorised representativ....
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....ed Bank regarding the credit card payments were collected behind the back of the appellant and, therefore, could not be relied upon For this proposition, he relied on the following decisions : 1. Kishinchand Chellaram v. CIT [1980] 125 ITR 713(SC). 2. Giridhar Agency v. Asstt. CIT [1997] 63 ITD 79(Patna)(TM). He further submitted that even on merits the fact that the appellant was at Surat for trading in diamonds has been proved beyond doubt. 16. The learned authorised representative further submitted that the fact that Shukra Jewellers was a genuine person was beyond doubt as the appellant had furnished the necessary particulars of sale and also the bank accounts of Shukra Jewellers wherein the entire banking transactions were revealed to prove the creditworthiness of the purchaser. He, therefore, submitted that the identity of Shukra Jewellers, the genuineness of the transaction as well as the creditworthiness, of Shukra Jewellers were proved beyond doubt as all the necessary data in relation to the transaction were collected from M/s. Shukra Jewellers by the Assessing Officer on 19-2-2001 and were available much before the assessment order was passed on 30-3-2001. ....
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....bt. As for the decision of the Supreme Court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801, he submitted that this decision was also distinguishable. In that case, the Apex Court held that the receipt of money could be taxed as income only when the recipient fails to rebut the evidence that it is not his income. The learned authorised representative submitted that on the facts of the appellant's case, the appellant had proved the genuineness of the transaction beyond doubt and that the proceeds of diamonds were not his income and it arose from a sale transaction. 19. Summing up his arguments, the learned authorised representative of the assessee submitted that having regard to the facts and evidence on record and the factual documentary evidence and other facts taken together proved beyond doubt that the transaction of sale of diamonds was genuine and, therefore, the first appellate authority erred in upholding the addition under section 68 of the Income-tax Act, 1961. 20. The learned departmental representative, on the other hand, supported the orders of the authorities below and filed a paper book containing 23 pages and submitted that the sale of diamonds in the fa....
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.... and, therefore, he could not have been at Surat on 25-3-1998 when he sold diamonds for Rs. 19,11,830. 22. Drawing our attention to page Nos. 15, 17 and 21 of the paper book filed by him, the learned departmental representative brought to our notice the modus operandi adopted by the diamond merchants at Surat. He further submitted that it was found that one Madanlal Jain was giving accommodation entries to various parties and that his statement was recorded to admit the accommodation entries. He also drew our attention to the sworn statements of Gautamchand Jain at pages 17,18 and 19 of the paper book filed by him. He also brought to our notice letter dated 5-3-2001 from the Office of the DCIT (Inv.), Circle 1(1), Aayakar Bhavan, Surat, addressed to the DCIT, Hyderabad, which contains a general statement about the VDIS transactions. He also drew our attention to a letter addressed to Shukra Jewellers, Surat, which was returned by the postal authorities. Having regard to all these facts, the learned departmental representative submitted that the transactions of sale of diamonds by the appellant with M/s. Shukra Jewellery Ltd. was not genuine. 23. The learned departmental repre....
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.... and, therefore, the submission of the learned departmental representative that the appellant was in Hyderabad on 25-3-1998 is not correct. 25. Subsequent to the hearing, the learned authorised representative of the appellant filed a petition stating that as the paper book complied by the learned departmental representative was given at the time of hearing on 21-5-2002, the entry of Rs. 5 lakhs could not be properly appreciated by him at that point of time. He brought to our notice by filing documentary evidence that the sum of Rs. 5 lakhs debited on 25-3-1998 under the name of Sri Harish Kumar as found at page 13 of the paper book filed by the learned departmental representative, represented deposits in the bank and not withdrawals. These deposits further represented transfers from the bank account of Sri Harish Kumar to the bank account of the firm of Neeru Textiles. The bank account copy of Sri Harish Kumar filed at page 125 of the paper book wherein the transfer entries were made, reconciled the cheque numbers issued and reflected in the personal bank account of Sri Harish Kumar with the cheque numbers found at pages 13 and 14 of the paper book filed by the learned departmen....
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.... to query No. 169, it was clearly answered by the appellant that as far as the letters were concerned, the appellant was not their regular customer, regular associate and that he was associated with them till the payment was received and, therefore, this clearly demonstrates that the appellant was not responsible in any way for the return of letters. In fact, the letter addressed by Shukra Jewellers on 19-2-2001 to the DCIT, Tilak Road, Hyderabad, clearly states that their address was at Mumbai because the entire bank account copy of Shukra Jewellers sent along with this letter has been referred to DCIT, Hyderabad. Therefore, the learned authorised representative submitted that the mere fact that the letters were returned "unserved" could not bring in a conclusion that the transaction was not genuine when Shukra Jewellers had confirmed the transaction on communication at their correct address at Mumbai. 28. As regards the ground relating to aggregation of agricultural income of the appellant from M/s. Basanth Farms, the learned authorised representative of the assessee submitted that there is no provision for aggregation of share income of a partner from a firm from the assessme....
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....h Court in S. Hastimal's case also supports this view of the appellant. 31. As regards the appellant's presence at Surat on the dates of sale of jewellery on 22-2-1998, 15-3-1998 and 25-3-1998, the Revenue has relied on the credit card statement of Standard Chartered Bank and bank account entries on 25-3-1998 to hold that on these dates the appellant was at Hyderabad and, therefore, he could not have been at Surat on the aforesaid dates. In this connection, we accept the submission of the learned authorised representative of the appellant that credit card statements and bank account entries on 25-3-1998 cannot be relied upon as these were collected behind the back of the appellant and were never put to the appellant for rebuttal, as held by the Honourable Supreme Court in Kishinchand Chellaram's case. 32. Notwithstanding the above, we hold that although the Revenue claims that the appellant was in Orchid Restaurant, Hyderabad, on 22-2-1998, when the first sale of diamonds took place, no evidence has been brought on record to show that the appellant was present during the day time on 22-2-1998. We have also found as a matter of fact that the sale of diamonds of other members i....
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.... the DCIT, Surat, clearly mentioned that the jurisdiction of Shukra Jewellers has with Mumbai office and not Surat and, therefore, nothing turns on this correspondence. As for the postal remark that the letter addressed to Shukra Jewellers was returned, we hold that on a perusal of the letter dated 16-1-2001 addressed by the DCIT, 2(1), Hyderabad, and letters dated 19-2-2001 that the correct present address of Shukra Jewellers is at Mumbai and not at Surat and the letter was therefore returned "unserved". Nothing turns on this issue as far as the genuineness of the transaction is concerned. 36. We have also noted that the appellant was examined on 2-3-2001, 3-3-2001,10-3-2001,13-3-2001 and 14-3-2001 and over 173 questions were put to the appellant. The appellant in response to question Nos. 140 to 143 was called upon to describe the diamond purchaser's premises and this was answered by the appellant with minute details. Besides, it is not as though the sale of diamonds was done in 30 to 60 minutes as contended by the Revenue. The sale followed external enquiries made by the appellant, as stated in response to question No. 70 and the appellant got the best price at Surat. 37. ....
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....ire examination of Expert jewellers relating to opinion on segregation of diamonds, reference to credit card statements of Standard Chartered Bank on 22-2-1998, 15-3-1998 and 25-3-1998, adverse inferences drawn on the bank statements of Shukra Jewellers and the entire material contained in the Revenue's paper book from pages 9 to 23, were either collected behind the back of the appellant or never put for rebuttal and, therefore, these cannot be relied on. Even otherwise, on facts we have held that these evidences do not in any way strengthen the case of the department that the transaction in the sale of diamonds are not genuine. We also find that the entire addition of Rs. 51,92,750 has been made on presumptions, surmise and suspicion and, therefore, cannot stand, on the basis of the following judgments : (1) Uma Charan Shaw &Bros. case. (2) Hazari Lal Roopchand v. CIT [1967] 65 ITR 488(All.). (3) Sheo Narain Duli Chand v. CIT [1969] 72 ITR 766 (All.). (4) Dhananjaya Reddy v. State of Karnataka 2001 4 SEC 9 (SC). (5) ACIT v. Shailesh S. Shah [1997] 63 ITD 153 (ITAT, Mumbai). The Honourable Supreme Court in Orissa Corprn. (P.) Ltd., the Patna High Court in Balji Br....
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....e Revenue that the transaction was genuine and all the tests laid down by the Calcutta High Court have been satisfied. In fact, this decision favours the appellant. In reply to the contention of the learned departmental representative that the appellant had not produced M/s. Shukra Jewellers, the learned authorised representative of the appellant submitted that it was not the appellant's duty to do so, and relied on the decision of the Calcutta High Court in CITV. Emerald Commercial Ltd. [2001] 250 ITR 539. 42. The Commissioner (Appeals) has relied on the judgment of the Supreme Court in Durga Prasad More's case 546-547. This decision is clearly distinguishable since the question of applying the test of human probabilities etc. does not arise on the facts of the appellant's case as they are all based on actual facts. The reference to the judgment of the Supreme Court in Sumati Dayal's case is of no avail as the facts therein related to the burden of proof being on assessee to prove that amounts credited did not represent income. We have already held on the basis of documentary evidence and facts that the assessee had discharged the burden of proving that the entire sale transact....