TaxTMI 
TaxTMI 
2003 (1) TMI 62
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....d in the circumstances of the case, the Income tax Appellate Tribunal was justified in law in deleting the addition of Rs. 12,50,000 made by the Assessing Officer under section 40(A)(2)(b) of the Income-tax Act, 1961 ?" The assessment year relevant for the purpose herein is the assessment year 1988-89. The assessee is engaged in the diamond business and for that purpose it imports rough diamonds and after cutting and polishing exports the same. In the assessment year in question, the assessee had imported rough diamonds from Paras Gems, New York, which is a substantially interested concern within the meaning of section 40A(2)(b) of the Income-tax Act. The Assessing Officer compared the price of the rough diamond imported by the ass....
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.... year 1987-88 the Revenue has filed tax appeal under section 260A of the Income-tax Act and the same is pending. Mr. Mehta, learned counsel appearing on behalf of the assessee, on the other hand, submitted that all the necessary documents pertaining to the purchase of rough diamonds from Paras Gems were placed before the Assessing Officer. He submitted that there are 7,000 different varieties of diamonds and there can be no generalisation or averaging of rate with respect to the different varieties of diamonds. Mr. Mehta brought to our notice the order of the Tribunal in the case of the assessee for the assessment year 1987-88. Referring to the order of the Commissioner of Income-tax (Appeals), quoted in the said order of the Tribunal, M....
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....nal has rightly deleted the disallowance. The undisputed facts are that the assessee and Paras Gems from whom the assessee has imported rough diamonds, fall within the category specified under section 40A(2)(b). Therefore, if the expenses incurred on the purchase of rough diamonds from Paras Gems is found by the Assessing Officer to be excessive or unreasonable, then the burden is on the assessee to establish that the price is not excessive and that there is no over invoicing. In the present case, the assessee had furnished a summary chart of purchases in respect of rough diamonds showing the price at which such diamonds have been purchased from different parties. The assessee had also furnished a groupwise summary of the cut and polishe....
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....e the imports are made by the assessee from the persons falling under the category under section 40A(2)(b), the burden is upon the assessee to establish that the price paid by it is not excessive or unreasonable. It is important to bear in mind that certain trade practices prevalent in the diamond industry are within the knowledge of the assessee. The purpose behind the Legislature enacting section 40A(2)(b) was to provide for shifting of burden on the assessee in cases where the transactions are not at arm's length. In this case, Paras Gems is a sister concern of the assessee, which is not in dispute. It is located in Belgium. The purchases are made by the assessee from its sister concern. In such cases, the intricacies of the transacti....
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....t of the matter, we think it necessary, in the interest of justice, to set aside all the orders passed by the authorities below and remit the matter back to the Assessing Officer to decide afresh the question of disallowance under section 40A(2)(b) of the Income-tax Act. In this view of the matter, we direct : (i) the assessee to file before the Assessing Officer within six weeks from today, an affidavit making statement on oath and annexing additional documents/statements to establish that the price paid by it to Paras Gems is not excessive or unreasonable ; (ii) if the Assessing Officer is not satisfied by such affidavit and documents/statements adduced by the assessee, the Assessing Officer will call upon the assessee to lead or....