2002-VIL-181-ITAT-HYD

Equivalent Citation: ITD 085, 366, TTJ 080, 174,

Income Tax Appellate Tribunal HYDERABAD

Date: 31.05.2002

HARISH KUMAR.

Vs

DEPUTY COMMISSIONER OF INCOME-TAX

BENCH

Member(s)  : H. S. SIDHU., J. SUDHAKAR REDDY.

JUDGMENT

Per Sri H.S. Sidhu, Judicial Member.-This is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals)V, Hyderabad, dated 28-2-2002, for assessment year 1998-99, on the following grounds :

"1. The order of the CIT(A)-V, Hyderabad, in sustaining the addition of Rs. 51,92,750 being the sale proceeds of Diamonds as unexplained credit under section 68 of the Income-tax Act is unsustainable in law.

2. The learned CIT(A)-V, Hyderabad, failed to note that all the purchasers of diamonds were identified persons who had confirmed the Transaction and therefore erred in confirming the addition of Rs. 51,92,750.

3. The learned CIT(A)-V erred in placing reliance on the dates mentioned in SCB Credit Card statements which were collected behind the back of the assessee and therefore held no evidentiary value and therefore erred in confirming the addition 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. For the assessment year 1998-99, the appellant submitted a return of income disclosing an income of Rs. 5,64,270 which inter alia included capital gains of Rs. 3,84,270 on sale of gold and jewellery. The computation of total income has been exhibited at pages 51 and 52 of the Paper Book filed by the appellant. The appellant availed the benefits of Voluntary Disclosure of Income Scheme of 1997 and declared gold and diamonds at Rs. 2,64,040 and Rs. 16,38,700 respectively, aggregating to Rs. 19,02,740, being the value of gold and diamonds and the necessary certificate under the disclosure scheme of 1977 was issued by the Commissioner of Income-tax, A.P., Hyderabad, vide certificate No. 09027 dated 30-12-1997. The appellant sold the gold and diamonds separately, i.e., after segregating the diamonds and the value realised was as under :

------------------------------------------------------------------------------------
Sl.No.    Description           Date of          Sold to                    Amount 
          of item               sale                                          Rs. 
------------------------------------------------------------------------------------
  1.      Gold                13-2-1998    Andhra Bullion Corporation,     4,59,979
                                           Pot Market, Secunderabad. 
  2.      Diamonds            22-2-1998    Shukra Jewellers, 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:                                   51,92,750
--------------------------------------------------------------------------------

The sale of gold at Rs. 4,59,979 was accepted as genuine by the Assessing Officer, while the sale of diamonds to Shukra Jewellers, Surat, aggregating to Rs. 51,92,750 was not accepted as genuine. The entire sale value of diamonds at Rs. 51,92,750 was added by the Assessing Officer. Copies of the sale bills in respect of sale of diamonds to M/s. Shukra Jewellers, Surat, have been enclosed to the assessment order and have been furnished by the assessee in the paper book at pages 15, 16 and 17. The assessment was completed on 30-3-2001 determining the taxable income at Rs. 57,57,020 and this included the addition of Rs. 51,92,750 being the sale value of diamonds sold at Surat treated as unexplained credit and added under section 68 of the Income-tax Act.

4. Apart from the above, the assessee is a partner in the agricultural firm of M/s. Basant Farms. The appellant's share from this partnership firm was Rs. 3,75,000 which was aggregated for rate purposes. The appellant disputes the aggregation of agricultural income earned from the partnership firm of Basant Farms at Rs. 3,75,000 on the ground that the income cannot be aggregated as the share income from the firm is exempted and also the rules relating to aggregation of agricultural income are not applicable to share income earned from agricultural farms.

5. Aggrieved by the assessment order dated 30-3-2001, the assessee has filed an appeal before the Commissioner (Appeals) who confirmed the order of the Assessing Officer on the aforesaid two issues. Aggrieved by the order of the Commissioner (Appeals), the assessee has filed the present appeal on the grounds mentioned above.

6. Sri K.C. Devdas, Chartered Accountant, learned authorised representative of the assessee, took us through the assessment order and stated that the additions have been made by the Assessing Officer disbelieving the assessee's claim for the sale of diamonds at Surat as not being genuine for the following reasons as stated in the last paragraph of the assessment order :

"(1) The assessee in the return of income filed by the assessee, initially he stated that the diamonds were sold at Daman, but when the proof was called for, invoices on the letter heads disclosing that the sale was effected at 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 diamonds, it has been conclusively proved that he was at Hyderabad with reference to the documentary evidence available in the form of his dated initials on the purchase invoices which were made by the assessee when confirming receipt of goods and making payment for purchase."

7. The learned authorised representative contested each of the aforesaid grounds. He argued that the fact that in the return of income it was stated that the diamonds were sold at Daman, cannot be a ground to disbelieve the sale of diamonds as this was a mistake while computing the total income and in fact Shukra Jewellers had their office at Surat, Daman and Mumbai as could be seen from their invoices at pages 15, 16 and 17 of the paper book filed by the appellant. It was his submission that the noting in the return of income that the sale of diamonds took place at Daman flew from a mistake as to the adoption of the place as M/s. Shukra Jewellers had their offices at Surat, Daman and Mumbai. M/s. Shukra Jewellers had confirmed that they had purchased the diamonds at Surat, he added.

8. As regards the finding of the Assessing Officer that the assessee could not have removed the diamonds from the gold jewellery, the learned authorised representative submitted that the fact that the diamonds were separated from gold was not disputed as the gold and diamonds were sold separately and the sale proceeds of gold were accepted by the Department. He also submitted that the Assessing Officer examined the Expert jeweller behind the back of the appellant and the examination of the expert revealed that any person could remove the diamonds, but he ran the risk of reduction in value to the extent of breakage. Therefore, he submitted that the appellant took the risk of removal of diamonds and was successful and therefore the finding that the appellant could not have removed the diamonds flew from surmise and suspicion.

9. As regards the observation regarding handing over diamonds of over Rs. 50 lakhs to Shukra Jewellers and the remittance of sale proceeds on a later date, the learned authorised representative of the assessee submitted that this was the practice in this line of trade where the diamonds were collected first and the payments are made subsequently. Here again, he submitted, the appellant, being a businessman, relied on his acumen with regard to the transaction and, therefore, the fact 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 form of his dated initial on the purchase invoices which were made by the assessee when confirming the receipt of goods and making payment for purchase, the learned authorised representative submitted that the appellant in response to various queries, in particular to question No. 169, stated that the dated initials of the purchase invoices were not to confirm the payment, but for payment on a particular date which was initialled much prior to the date stated in the invoices. To demonstrate this aspect, he took us through pages 83 to 111 of the paper book wherein he has demonstrated that the dated initials for example with dates as 15-12-1997, 23-4-1998, 10-11-1998 and 3-5-1999 were all made much prior to these dates and the appellant was out of station on these dates and that these statements were filed before the lower authorities. The authorised representative also brought to our notice that the dated initials of 15-12-1997 in relation to payment to Ashoka Distributors, which were made much before that date, was for the purpose of making payment on that date. He also filed necessary data at page 130 of the paper book wherein the payment has actually been made on 15-12-1997 to Ashoka Distributors and the appellant was not in Hyderabad on 15-12-1997. Evidence in this direction was filed in the form of air tickets, hotel bills to prove that the appellant was not in Hyderabad on 15-12-1997. Therefore, on this ground also, the learned authorised representative of the assessee submitted that the addition could not be made.

12. Elaborating further, the learned authorised representative stated that M/s. Shukra Jewellery Ltd. had in their letter of 19-2-2001 addressed to the Dy. Commissioner of Income-tax, Circle 2(1), Hyderabad, which was available much before the assessment order was passed, had confirmed the entire transaction and also replied to the various questions asked by the Assessing Officer in his letter dated 16-2-2001. Therefore, it was submitted that the entire transaction with Shukra Jewellers was genuine and that the earlier letters written to Shukra Jewellers were returned unserved as the concern ceased to carry on business at Surat and had offices later only at Mumbai and Daman. On correspondence with the Mumbai Office, Shukra Jewellers had responded by giving complete details regarding the purchase, the purchase invoices, copy of stock register, 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 representative rebutted the observation of the Commissioner (Appeals) that the appellant was not at Surat on most of the dates mentioned above. He brought to our notice that the Commissioner (Appeals) had stated that the appellant was in Bangalore on 8-12-1997 when the appellant used his credit card issued by Standard Chartered Bank for making payment to Kamat Hotel, Bangalore. The authorised representative submitted that the date 8-12-1997 was not relevant as the appellant sold the diamonds on 22-2-1997, 15-3-1998 and 25-3-1998. As regards the date 22-2-1998, he submitted that the Commissioner (Appeals) pointed out that the appellant had used the credit card for making payment to M/s. Orchid Restaurant, Hyderabad, on 22-2-1998 according to the Credit Card Statement of 18-3-1998 issued by Standard Chartered Bank. He submitted that while the payment to M/s. Orchids Restaurant on 22-2-1998 by the appellant was in the late hours of 22-2-1998 and that the appellant was actually at Mumbai and Surat on 22-2-1998 and the dates preceding 22-2-1998 and had come to Hyderabad in the late hours of 22-2-1998 and was at Orchids in the late hours of the night and, therefore, it cannot be presumed that he was not at Surat on 22-2-1998. As regards the date 15-3-1998, when the diamonds were sold, the appellant was actually at Salem according to the credit card statement. The appellant had stated that the sale of jewellery in the family started from 3-12-1997 and in response to query No. 128 the appellant had stated that on most of the dates the appellant was at Surat thereby meaning that it was not necessary for the appellant to be at Surat at all times.

14. As regards the sale of diamonds on 25-3-1998, the learned authorised representative submitted that neither the Assessing Officer nor the Commissioner (Appeals) had brought on record any statement or evidence to show that the appellant was in Hyderabad on 25-3-1998. Therefore, he submitted that the observation of the lower authorities that the appellant was not in Surat on the dates when the diamonds were sold are all based merely on surmise and suspicion and the fact remains that the gold and diamonds were separated and that the sale of gold was accepted by the Assessing Authority.

15. Without prejudice to the above, the learned authorised representative of the assessee submitted that the data collected from the Standard Chartered 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.

17. The learned authorised representative submitted that both the Assessing Officer and the Commissioner (Appeals) have referred to the bank account statements of Shukra Jewellers to state that the purchases of drafts were out of cash deposits made either on the same day or a day earlier and came to the conclusion that the transaction of sale of diamonds was not genuine. He submitted that a copy of this bank statement was never put to the appellant and at any rate the appellant cannot be called upon to explain the sources for the deposits in bank made by Shukra Jewellers.

18. Winding up his submissions, the learned authorised representative submitted that the entire transaction with M/s. Shukra Jewellers was genuine. The party was identifiable as could be seen from the Bank statements of Shukra Jewellers and the onus the department had to discharge about the genuineness of the transaction was on the contrary discharged by the appellant, and therefore, the provisions of section 68 are not applicable to the transaction. The learned authorised representative relied on the following case laws for the propositions canvassed by him :

1. S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.).

2. Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723 (Bom.).

3. Balurghat Transport Co. Ltd. v. Asstt. CIT [1993] 63 TTJ (Cal.) 302.

4. Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 (Pat.).

5. CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 (SC).

6. Umacharan Shaw &Bros. v. CIT [1959] 37 ITR 271 (SC).

7. Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344 (Pat.).

As regards the case laws relied on by the Commissioner (Appeals), the learned authorised representative submitted that in the case of CITV. Precision Finance (P.) Ltd. [1994] 208 ITR 465(Cal.), the facts of the case and the decision were distinguishable as the appellant in the case before us had proved the identity of M/s. Shukra Jewellers, the genuineness of the transaction as also the creditworthiness as Shukra Jewellers had responded to all the queries raised by the Assessing Officer. As regards the reliance placed by the Commissioner (Appeals) on the decision in the case of CIT v. Durga Prasad More [1971) 82 ITR 540 (SC), he submitted that this decision is also not applicable to the present case and is distinguishable as the evidence placed in relation to the transaction was on facts beyond doubt. 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 family of Sri Harish Kumar was over two crores, that the appellant initially stated that the diamonds were sold at Daman, that there were no serial numbers to the sale invoices of Shukra Jewellers, that there were no addresses at Surat of Shukra Jewellers in the letters filed on 19-2-2001 and that it was a common feature in the cases of all diamond purchasers that all their books were washed away in floods including the floppies and FIRs were filed by the diamond merchants of Surat to stonewall the investigations of the Department. He further submitted that there was no diamond business carried on by M/s. Shukra Jewellers prior to 1997 and that the appellant does not come from a goldsmith family and, therefore, he could not have removed the diamonds on his own without the damage and, therefore, the very existence of diamonds was doubtful. The learned departmental representative further submitted that the appellant had submitted that he did not believe anyone for the removal of diamonds and therefore it was strange that he could have left the diamonds worth Rs. 51,92,750 with Shukra Jewellers and to receive the payment at a later date. He further submitted that in response to query No. 81 at page 61 of the appellant's paper book, the appellant had stated that he took only about 30-60 minutes to sell the diamonds and it was not probable that the transaction could have been completed on such a fast track.

21. The learned departmental representative further submitted that the appellant was at Hyderabad on 22-2-1998, one of the dates of sale, and he could not have been at Surat as the flight leaves Hyderabad at about 8.30 A.M. and having regard to the travelling time taken after alighting at Mumbai, checking time in hotels, the assessee could not have undertaken the journey from Mumbai to Surat and come back to Hyderabad the same day to be in Orchid Restaurant at Hyderabad. He, therefore, submitted that the appellant was not at Surat on 22-2-1998 to sell diamonds for Rs. 14,57,750. As regards 15-3-1998, another date of sale, he was of the view that the appellant was at Salem and, therefore, could not have sold the diamonds worth about Rs. 18,23,170. As regards 25-3-1998, sale of diamonds for Rs. 19,11,830, he drew our attention to page 13 of the paper book filed by him, wherein on 25-3-1998 Sri Harish Kumar had drawn a sum of Rs. 5 lakhs from State Bank of India 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 representative relied on the decision of the Calcutta High Court in the case of Precision Finance (P.) Ltd., relied on by the Commissioner (Appeals) at paragraph 4.5 of his order. He further submitted that Shukra Jewellers was not produced and that the onus was not discharged by the appellant. He also submitted that Shukra Jewellers was not in the practice of giving serial numbered bills. He placed reliance on the decision of the Honourable Supreme Court in the case of Sumati Dayal, and the decision of the Delhi High Court in CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (FB), for the proposition that the provisions of section 68 are applicable even to sale transactions. He further submitted that the appellant had not legally discharged the burden of proof and that the offices of Shukra Jewellers were not at Surat but only at Mumbai and that the appellant could not have carried the diamonds of such high value disregarding police action and theft interference and, therefore, the sale of diamonds was a fabricated story and that the provisions of section 68 were rightly applied. He also placed reliance on the judgment of the Andhra Pradesh High Court in the case of R.B. Mittal v. CIT [2000] 246 ITR 283, for the proposition that the burden of proof for cash credits is on the assessee to prove its genuineness and creditworthiness of the parties.

24. The learned authorised representative of the assessee, in his rejoinder, at the outset submitted that all the documents filed in the paper book of the department from pages 9 to 21 were not put to the appellant and, therefore, it is material which is being placed for the first time before the Tribunal. Without prejudice to the aforesaid submission, the learned authorised representative submitted that as far as the question of the appellant being at Surat on the dates of sale of diamonds is concerned, the submissions were already made by him and that as regards the withdrawal of amount on 25-3-1998 by Sri Harish Kumar from State Bank of India, Hyderabad, which according to the learned departmental representative proved that the appellant was at Hyderabad when the diamonds were sold at Surat on that day, the learned authorised representative submitted that Sri Harish Kumar always left blank cheques whenever on tours and this was evidenced from the replies to query Nos. 108, 109 and 114 at pages 66 and 67 of the paper book, 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 departmental representative. He, therefore, submitted that the submission of the learned departmental representative that the sum of Rs. 5,00,000 was withdrawn from the bank by Sri Harish Kumar on 25-3-1998 flew from an inadvertent mistake in reading the entries.

26. Commenting on the paper book filed by the learned departmental representative at pages 15 to 22, the learned authorised representative of the appellant submitted that the letter dated 1-1-2001 was a letter written by DCIT, Surat, to DCIT, Hyderabad, wherein information relating to M/s. Sweety Exports, M/s. Kavo Gem Exports, M/s. Ankit Exports and M/ s. Pooja Impex and that these did not relate to M/s. Shukra Jewellers to whom the diamonds were sold by the appellant. He submitted that the copy of the statement of Gauthamchand found at pages 17 to 19 of the Revenue's paper book was also not relevant to M/s. Shukra Jewellers. In fact, a perusal of para 5 at page 16 of the paper book shows that the DCIT, Surat, had clearly stated these facts. Therefore, he submitted that nothing turns on this correspondence as they were general and internal in nature and there is no specific information relating to Shukra Jewellers with whom the appellant had business transactions.

27. Commenting on page 21 of the paper book filed by the learned departmental representative, the learned authorised representative of the appellant stated that the letter dated 5-3-2001 was addressed by the DCIT, Surat, to DCIT, Hyderabad, in which he gave a generalised statement and stated at paragraph 6 that M/s. Shukra Jewellers were at Mumbai and, therefore, the jurisdiction was not with DCIT, Surat. He, therefore, submitted that the department has not discharged the onus as regards the genuineness of the transaction of the appellant with M/s. Shukra Jewellers. As regards the postal endorsement in respect of a letter addressed to Shukra Jewellers Ltd. Surat, which was returned, the learned authorised representative submitted that Shukra Jewellers had discontinued their business at Surat and this was clear from the letter of 5-3-2001 addressed by the DCIT, Surat, to the DCIT, Hyderabad, wherein it was clearly mentioned that the address of Shukra Jewellers was at Mumbai and not at Surat and therefore the letter was returned unserved. In respect of letters unserved, the learned authorised representative further pointed out that in response 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 assessment year 1993-94 and the rules relating to computation of agricultural income did not provide for such aggregation. Reliance was placed on the decision of the ITAT in the case of Asstt. CIT v. Smt. Chandri N. Shah [1999] 71 ITD 231 (Nagpur), wherein it was held that agricultural share income is not to be regarded as agricultural income of the partner and consequently such income could not form part of agricultural income for rate purposes in the partner's hands. The learned departmental representative, on the other hand, supported the orders of the authorities below in respect of this issue.

29. We have considered the submissions of both sides and perused the relevant record available with us and perused the paper books filed by both sides. We are of the considered opinion that the sum of Rs. 51,92,750 representing the sale of diamonds to Shukra Jewellers, Surat, cannot be sustained for the reasons stated below.

30. It is an admitted fact that the appellant had declared gold and jewellery under the VDIS 1997 and it was accepted by the Department by issue of necessary certificate in accordance with the said scheme. It is also a fact that the gold and diamonds were sold separately. It is also an admitted fact that the sale of gold which was separated from the diamonds was made for Rs. 4,59,979 at Hyderabad and this sale has been accepted. The fact remains that the diamonds were separated. As regards the sale of diamonds to Shukra Jewellers, Surat, we find from the material evidence placed before us that the identity of the party has been established, the transaction is genuine and the creditworthiness of Shukra Jewellers has been proved beyond doubt by the assessee. The bank accounts of M/s. Shukra Jewellers which were collected by the Assessing Officer showed that the amounts were received by account-payee DDs from Mumbai. The DDs were taken by Shukra Jewellers and sent to the appellant which were credited in the appellant's bank account and used for business purposes of his business entities. As regards the credits in the bank account of Shukra Jewellers, we agree with the submission of the learned authorised representative of the appellant that it is not the duty of the appellant to prove the sources of the credits in the bank account of Shukra Jewellers. The appellant cannot establish the source of the source. The decision of the Honourable Madras High 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 in the family were on 3-12-1997, 8-12-1997, 16-12-1997 and 12-1-1998. The travel time from Mumbai to Hyderabad is an hour as noted by the Assessing Officer at page 24 in the last paragraph of his order and the travel time from Mumbai at Surat is 3 to 4 hours and, therefore, the presumption of the Assessing Officer that the appellant was at Hyderabad during the day when the business was transacted is not supported by any documentary evidence. The submission of the learned authorised representative of the appellant that the appellant was at Surat/Mumbai on 21-2-1998 and 22-2-1998 has also equal force to support that the appellant was in Hyderabad on 22-2-1998 only in the late hours of the night.

33. As regards the sale of diamonds on 15-3-1998, we find that the appellant had stated in response to question No. 128 that he was at Surat on most of the dates and not necessarily on all the dates. In view of the fact that preceding the date of 15-3-1998, there were sales of diamonds on 3-12-1997, 8-12-1997, 16-12-1997 and 24-1-1998 of other family members of the appellant, we accept the plea of the appellant that the sale of diamonds on 15-3-1998 was genuine.

34. As regards the sale of diamonds on 25-3-1998, it has been the contention of the revenue that the appellant was at Hyderabad on 25-3-1998 as he withdrew a cheque on 25-3-1998 and this was debited in the bank account of M/s. Neeru Textiles, Hyderabad. We have perused the statement and the rejoinder of the appellant. We have verified the bank statement and found that the sum of Rs. 5,00,000 was not drawn on 25-3-1998 but was credited to the bank account of M/s. Neeru Textiles and it is a transfer entry on 25-3-1998 from the bank account of Harish Kumar (Ind.) in State Bank of India to the bank account of M/s. Neeru Textiles and, therefore, the contention of the Revenue that the appellant was at Hyderabad on 25-31998 is not correct.

35. As regards letters filed by the learned departmental representative at pages 15 to 19 of the paper book, we hold that these are internal correspondence between the Income-tax Department at Surat and at Hyderabad which were never put to the appellant. None of these letters, which are in the form of general statements, pertains to Shukra Jewellers with whom the appellant had transactions. A specific reference to letter dated 5-3-2001 at page 21 of the paper book shows that 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. The contention of the learned departmental representative that the books of account, computer floppies and other evidences relating to purchase of diamonds by M/s. Shukra Jewellery Ltd. could not be verified on the pretext that these were washed away in floods in the heart of Surat and that the purchaser could not retrieve the same, is contrary to the facts and evidence on record. Shukra Jewellers co-operated in all enquiries of the Department. In fact, the loss of books and floppies in floods does not pertain to Shukra Jewellers as could be seen from the letter dated 5-3-2001 addressed by DCIT (Inv.) Circle 1(1), Surat, to DCIT, Circle 2(1), Hyderabad. We further find that M/s. Shukra Jewellery Ltd. was summoned under section 131 of the Income-tax Act, 1961 and that they confirmed the transaction and answered the questions raised by the Assessing Officer. The purchase of diamonds was reflected in the Stock Register maintained by Shukra Jewellers. The payments were made by DDs from Mumbai. The facts that the appellant himself removed the diamonds at his own risk and that the payments were received a month after handing over of the diamonds which was again a risk taken by the appellant, cannot be a ground to hold that the transactions of sale of diamonds were not genuine. The initials placed on the business purchase invoices of M/s. Neeru Textiles, in which the appellant is a partner, were the dates meant-for payment and the endorsements were made earlier. This had been demonstrated by the appellant with documentary evidence. We hold that in respect of huge deposits of amounts in the bank account of Shukra Jewellers, the appellant cannot be called upon to comment on the same as the department ought to have examined Shukra Jewellers as summons under section 131 was issued. The proceedings thereafter have not been placed before us by the Revenue.

38. Thus, the identity of, Shukra Jewellers, genuineness of the transaction and creditworthiness of Shukra Jewellers have been amply established by the appellant. We shall now consider the judicial decisions cited by the appellant and the Revenue.

39. The decisions relied on by the learned authorised representative of the appellant, viz., Kishinchand Chellaram and Giridhar Agency's case, support the view that information collected behind the back of the assessee cannot be relied upon. In the present case, the entire 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 Bros. (P.) Ltd. 's case, and the Bombay High Court in the case of Orient Trading Company Ltd., have held that if the loans are given by account-payee cheques, the entry stands in the name of a third party whose identity is established and who is an income-tax assessee and furnishes such other information, it can be said that the assessee has discharged the burden and it will not thereafter be for the assessee to explain how or in what circumstances the third party had obtained the money. Applying the aforesaid tests, it is found as a matter of fact that Shukra Jewellers has been identified, they are income-tax assessees, their bank account obtained by the Revenue establish their creditworthiness and, therefore, the appellant has discharged his onus and hence the Assessing Officer was wrong in disbelieving the transaction of sale of diamonds without bringing in any evidence to the contrary.

40. The Honourable Supreme Court in CIT v. Noorjahan (PK.) (Smt.) [1999] 237 ITR 570, held that the discretion postulated in section 69 before making the addition has to be judiciously exercised. The provisions of section 68 are in pari materia with section 69. Section 68 also used the word "may" and, therefore, before making an addition under section 68, the Assessing Officer has to exercise his discretion judiciously. Applying the aforesaid tests, we find that it is not so. In spite of the facts pointing in the direction of genuineness and identity of Shukra Jewellers and their creditworthiness not being in doubt, the addition has been made on presumptions, surmises and suspicions and, therefore, the judgment of the Supreme Court applies to the facts of the present case. We, therefore, hold that the Assessing Officer has erred in making the addition of Rs. 51,92,750 under section 68 of the Income-tax Act, 1961.

41. We find that the case laws relied on by the learned departmental representative are all distinguishable on facts and do not apply to the facts of the appellant's case. The decision of the Calcutta High Court in the case of Precision Finance (P.) Ltd., wherein it has been stated that it is for the assessee to prove the identity of creditors, their creditworthiness and genuineness of the transaction, related to a Cash Credit entry. In the case on hand, though it is a sale transaction, it has been found factually that the appellant brought to the notice of the 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 transaction in diamonds was genuine. Reliance was also placed on the Full Bench decision of the Delhi High Court in Sophia Finance Ltd.'s case, to state that the provisions of section 68 are also applicable to any credit, not necessarily cash credits, and it covers also sale transactions. Yet one has to see the degree of burden of proof that lies on an assessee in relation to sale transactions. On the facts of the present case, we have already held for elaborate reasons that the appellant has discharged the onus cast on it.

43. The learned departmental representative relied on the judgment of the Honourable High Court of Andhra Pradesh in the case of R.B. Mittal. The principle laid down therein is that the assessee has to prove the genuineness of credits and creditworthiness of parties in relation to cash credits. We have already held that the onus cast on the appellant to prove the genuineness of the transaction and the creditworthiness of Shukra Jewellers has been discharged by the appellant in the form of Shukra Jewellers directly confirming the genuineness of the transaction to the Assessing Officer vide their letter dated 19-2-2001 and their creditworthiness has been established from their bank accounts collected by the Assessing Officer. Therefore, the decision of the Honourable High Court of Andhra Pradesh, far from helping the cause of the Revenue, supports the claim of the assessee that the transaction is genuine.

44. Having regard to the facts of the present case and having perused all the evidences and paper books placed before us and after considering all the legal decisions on the subject, we hold that the Assessing Officer was not justified in treating the transaction of sale of diamonds of Rs. 51,92,750 with M/s. Shukra Jewellery Ltd. as not being genuine and, therefore, erred in adding the sum of Rs. 51,92,750 under section 68 of the Income-tax Act, 1961. We, therefore, delete the addition of Rs. 51,92,750.

45. As regards the ground relating to aggregation of the appellant's share in agricultural income from the firm M/s. Basanth Farms for rate purposes, we hold, following the decision of the Nagpur Bench of the Tribunal in the case of Smt. Chandri N. Shah, that it cannot be aggregated for rate purposes. We, therefore, direct that the agricultural share income of the appellant from the firm M/s. Basanth Farms at Rs. 3,75,000 be not aggregated for rate purposes.

46. In the result, the appeal is allowed.

 

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