TaxTMI 
TaxTMI 
2025 (1) TMI 1288
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....e facts for AY 2018-19 and issues in dispute thereon are taken up for adjudication and decision rendered thereon shall apply mutatis mutandis for AY 2019-20 also except with variance in figures. 3. The assessee raised following concise grounds of appeal:- 1. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in assessing the income of the appellant vide order dated 30.09.2021 passed under section 143(3) r.w.s. 153A of the Income tax Act, 1961 ("the Act") at Rs. 160.24,64,000 as against income of Rs. 149,47,78,770 declared by the appellant. 2. That the CIT(A) erred on facts and in law in confirming the addition of Rs. 154,95,82,050, being gross consideration received on sale of diamonds, as unexplained credits under section 68 of the Act in place of long-term capital gains thereon of Rs. 144,46,86,075 being declared by the appellant in the return of income. 2.1 That the CIT(A) erred in not appreciating that sovereign/ statutory immunity granted to declaration made/ accepted under Income Declaration Scheme, 2016 ("IDS") could not be questioned and therefore, the addition was wholly without jurisdiction and bad in ....
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....ers were recorded under section 132(4) of the Act. Further, a search and seizure operation was also purportedly carried out on 27.01.2020 at the residence of one third party, viz., Sh.Yogendra Raj Singhvi (hereinafter referred to as "Sh. Singhvi") at his farm-house/ residence at Ajmer, Rajasthan, wherein statement of Sh. Singhvi was recorded under section 132(4) of the Act. In the return of income, the assessee had declared Long Term Capital Gains ("LTCG") of Rs. 144,46,86,075/- on transfer of cut and polished diamonds. 7. The assessee claimed to have sold these items in the year under consideration for a total amount of Rs. 154,95,82,050/-. The ld AO sought for the details in this regard from the assessee vide notice u/s 142(1) of the Act issued from time to time. In response to the said notice, the assessee filed all the requisite details available in its possession before the ld AO. It would be relevant to note that the assessee had declared diamonds under Income Declaration Scheme (IDS) 2016 vide chapter IX of Finance Act, 2016 by filing a declaration on 13.09.2016 of 12857.07 carats of rough diamonds. The assessee submitted that these diamonds declared were received as gift....
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....sh the identity and genuineness of the buyers and such parties did not appear to be financially credible. 9. Since the receipt of sale consideration of diamonds was treated as bogus by the ld AO by adding it u/s 68 of the Act, consequentially the ld AO also added commission expenditure @ 0.18% of sale consideration u/s 69C of the Act in the sum of Rs 27,89,248/-. 10. The aforesaid action of the Ld AO was upheld by the ld CITA by observing that diamonds were not declared in any income tax or wealth tax return by the assessee earlier. In fact, findings of ld CIT(A) are self-contradictory as initially the existence of diamonds has been accepted and sale transaction also accepted to be genuine by holding that the gains accruing on sale of diamonds should be treated as short term gains, but thereafter proceeded on a completely different premise to hold, without any cogent/ reliable basis, the same to be a bogus transaction. 11. The ld AR filed detailed written submissions before us and he drew our attention to the various facets covered thereon and rebutted the entire allegations of the lower authorities by facts and figures. Per Contra, the ld DR submitted that the ld CITA nev....
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....sed asset under IDS 2016 and the same has been accepted by the ld PCIT by issuing Form No. 4 thereon. If the diamonds had earlier been declared in any tax returns, then why the assessee would even come forward to declare the same in IDS 2016. This argument of the revenue is simply absurd and only indicates the pre-determined mind in order to reach the pre-determined destination of taxing the receipt of sale consideration by any means whatsoever. 14. It is a fact that assessee had got the rough diamonds processed by cutting, polishing etc from following 4 job workers in Surat which resulted in 2231.12 carats of processed diamonds:- (i) Rujal Anil Shah (HUF) - Prop. Aarushi Gems (ii) Nareshbhai Babulal Dhami (HUF) - Prop. Beena Impex (iii) Adesh Nareshbhai Dhami (HUF) - Prop. Niti Impex (iv) Nikunj N Kahar - Prop. Misty Enterprises 15. The fact that processing of rough diamonds were undertaken by the assessee in assessment year 2017-18 is duly borne out of the invoices in support of the payments made to the job- workers, confirmations filed by the job workers along with their respective ITRs, proof of actual payments made to the job-workers a....
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....20 is enclosed in Pages 815 to 833 of Paper Book; - Relevant extracts of statement of Sh. Rajiv Chaurasia dt. 16.01.2020 is enclosed in Pages 896 to 904 of Paper Book; - Relevant extracts of statement of Sh. Vijay Anand Chaurasia dt. 15.01.2020 is enclosed in Pages 868 to 879 of Paper Book. 19. We find that all the family members, in their separate statements, categorically and consistently confirmed the following fundamental facts, without any contradiction:- (a) That they were in possession of diamonds, which was inherited by them; (b) That the diamonds were declared under IDS 2016 and tax paid thereon; (c) That the diamonds were cut/ polished; (d) That the polished diamonds were sold resulting in taxable long-term capital gains, which were declared in the tax returns. 20. Now coming to the statement of Sh Kamla Kant Chaurasia, we find that the ld AO, in the impugned assessment order, has sought to draw adverse inference in respect of the very existence of the diamonds by placing reliance on statement dated 16.01.2020, of Sh. Kamla Kant Chaurasia (father of assessee) wherein he purportedly stated that he was not aware of....
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....ertaken by the assessee through various parties, which details in comprehensive manner were duly furnished by the assessee as under:- - Complete details of parties including contact particulars of the job workers; - Ledger accounts of the job-workers enlisting the expenses and payments; - Copies of invoices issued by the job-workers; - Copies of bank statements of the assessee highlighting the payments made to the job-workers - entire payment was made through banking channels. 23. The details of contemporaneous documents filed by the assessee party wise in respect of 4 job workers for Assessment Year 2018-19 are as under:- (i) AarushiGems: * Copy of ledger account enclosed in Page 237 of Paper Book * Copy of bill/invoice & inspection memo enclosed in Pages 238 to 239 of Paper Book * Copy of bank statements from which payment was made enclosed in Page 240 of Paper Book * Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act - providing details of nature of business, address, transaction details with assessee and copy of ITRs enclosed in Pages 241 to 246 of Pa....
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....ransaction details with assessee and copy of ITRs enclosed in Pages 300 to 301 of Paper Book. 24. In so far as the specific allegations of the ld AO in respect of processing of diamonds are concerned, the same was rebutted by the ld AR as under:- (a) Allegation that the assessee failed to provide any details in respect of communication made with the parties who undertook cutting and polishing work done. It was submitted that the transaction took place in the Assessment Year 2017-18 i.e more than 3 to 4 years before the search was undertaken and the assessee could not have been expected to retain the communication trail with the said parties. Further, communication by way of telephone calls, text messages and personal meetings cannot practically be documented as expected by the ld AO. Further, the assessee has provided all documents in support of the transaction in the form of copies of invoice, ledgers and payment trail to corroborate the genuineness of the transaction. (b) Allegation that the assessee failed to provide copy of bank statement in support of the payment trail. The aforesaid allegation is factually incorrect. It was emphatically ....
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....t by the assessee herein. 26. We find that the ld AO had also alleged that the transaction of sale of diamonds is also not genuine. We are unable to comprehend ourselves to accept to this allegation of the revenue in as much as the the customers to whom cut and polished diamonds were sold by the assessee had directly responded before the ld AO by furnishing direct replies / evidences in response to notice issued u/s 133(6) of the Act confirming and submitting the following:- (i) having purchased diamonds from the assessee; (ii) ledger accounts and information with respect to quantity and weight of diamond purchased ; (iii) stock register along with relevant extract of stock register; (iv) party-wise purchase and sale register (including PAN and address of the party); (v) detailed list of sundry debtors through whom funds were received for the purchase of diamonds along with bank statement and GST return (GSTR - 1); (vi) copy of ITR, computation of income, Tax Audit Report, audited financial statements along with copy of income tax returns; (vii) bank statements of accounts from where payments were made to the assesse....
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.... * Copies of KYC and business profile of the parties enclosed in Pages 604 to 607 of Paper Book * Details of PAN enclosed in Page 608 of Paper Book * Copy of Aadhar card enclosed in Page 609 of Paper Book * Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act - providing copy of ledger accounts, transaction details, stock register, bank statement, financial statements, GST return, ITR etc enclosed in Pages 610 to 686 of Paper Book. (iv) Bhairav Gems: * Copy of ledger account enclosed in Pages 687 to 691 of Paper Book * Copy of purchase confirmation enclosed in Pages 692 to 718 of Paper Book * Copy of bank statement in which the sale proceeds were received enclosed in Pages 719 to 729 of Paper Book * Copies of KYC and business profile of the parties enclosed in Pages 730 to 734 of Paper Book * Details of PAN enclosed in Pages 735 to 736 of Paper Book * Copy of passport enclosed in Page 737 of Paper Book * Copy of Aadhar card enclosed in Page 738 of Paper Book 28. We find that the sale of diamonds made by the assessee to the aforesaid cust....
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.... 31. Similarly even the statement of Sh. Kawadia who also gave statement u/s 132(4) of the Act during his search stating that the transactions are bogus, had retracted vide letter dated 9.2.2021 which is enclosed in Pages 231 to 234 of the Paper Book. 32. Hence it could be safely concluded that no reliance in any manner whatsoever, could be placed on the statements of Sh. Singhvi and Sh. Kawadia to draw adverse inference against the assessee herein. In any event, the revenue had not even bothered to verify as to whether there was any financial transactions between the assessee and Sh. Singhvi and Sh. Kawadia. Factually there is none. This was not controverted by the revenue. On the contrary, the assessee was confronted with the selective portion of the statements recorded u/s 132(4) of the Act of Sh. Singhvi and Sh. Kawadia . Assessee sought for furnishing of complete copy of the statements recorded from these two parties, which was denied. Even the cross - examination of these two parties which were sought for by the assessee. The ld AO fixed the date of cross examination of these two parties on 20.9.2021 without furnishing the full text of the statements recorded from them, o....
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....nstrued from 01.06.2016 and not from the actual date of their acquisition. While holding so, the ld CITA relied upon CBDT Circular No. 29 of 2016 dated 18.08.2016 read with subsequent clarification dated 19.08.2016. Accordingly, the ld CITA observed that capital gains arising on sale of the diamonds should be classified as "short term capital gains" instead of "long term capital gains" as declared by the assessee in his return of income. 34. The aforesaid conclusion of ld CITA is self-contradictory, completely misplaced, illegal and arbitrary as the same operates in contravention to Explanation 1(i)(b) of section 2(42A) of the Act which specifically provides that in case of assets acquired by way of gift, the period of holding shall include the period for which such assets were held by the previous owner. Since in the present case, the diamonds were gifted to the assessee by his grandfather in the previous year relevant to assessment year 1994-95, while computing capital gains, the period of holding should be construed accordingly. Thus, such diamonds shall fall within the definition of "long term capital assets" and consequently, "long term capital gains" shall arise on their t....