Itta/132/2003 Of The Commissioner Of Income Tax-Iv. Hyd v. Harish Kumar (Huf)

* THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.Nos.120, 132 & 229 of 2003 %Date: 16.09.2014 The Commissioner of Income Tax – IV, Hyderabad. and …appellant. $Tilak Raj Kumar and others. …Respondents ! Counsel for appellant: Sri J.V.Prasad ^ Counsel for Respondents : Sri Y.Ratnakar < GIST: HEAD NOTE: ? Cases referred THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.Nos.120, 132 & 229 of 2003 COMMON JUDGMENT:(Per the Hon’ble Sri Justice L.NarasimhaReddy) These three appeals arise under similar circumstances, andthe respondents are from the same family. Hence, they are disposedof through a common order. The respondent in I.T.T.A.No.132 of 2003 is the HinduUndivided Family (HUF). The respondent in I.T.T.A.No.229 of 2003is the Karta of the family, who, in turn, is an independent assessee. Similarly, the respondent in I.T.T.A.No.120 of 2003 is a member ofthe HUF, and he is also an independent assessee. All the threeassesses have availed the benefit under “Voluntary Disclosure ofIncome Scheme (VDIS)” and declared items, which are mostly ofjewellery, namely gold and diamonds. For example, the value ofgold declared by the Kartha of the Family, by name Harish Kumar,was Rs.2,64,040/-, and that of diamonds - Rs.16,38,700/-. Similarly,the value of the gold disclosed by the other assessee, Tilak RajKumar, was Rs.1,57,028/- and that of diamonds - Rs.1,16,000/-. Certificates of disclosure were also furnished to them. All the three assesses are said to have sold away thejewellery declared by them under the VDIS. While the gold is said tohave sold at Hyderabad, the diamonds are said to have beenseparated from the ornaments and sold at Surat. The sale proceedsof the jewellery were shown in the respective returns, as ‘capitalgains’, for the assessment year 1998-99. The Assessing Officerbelieved the transaction of sale of gold at Hyderabad, but doubtedthe genuinity of sale of diamonds at Surat. After conducting a detailed enquiry, he disbelieved that, and treated the amount shownas sale proceeds of diamonds in all the three assessments, as‘unexplained cash credit’, in the respective orders of assessment,passed by him. The respondents carried the matter in appeal to theCommissioner of Income Tax (Appeals)-V, Hyderabad. The appealswere dismissed through separate orders passed in the year 2002. Thereupon, the respondents filed I.T.A.Nos.212, 271 and272/Hyd/2002, respectively, before the Hyderabad Bench ‘B’ of theIncome Tax Appellate Tribunal (for short ‘the Tribunal’). TheTribunal allowed I.T.A.No.212 of 2002 through order, dated31.05.2002, and I.T.A.Nos.271 and 272 through separate orders,dated 07.06.2002. Hence, these three appeals under Section 260Aof the Income Tax Act, 1961 (for short ‘the Act’), by the Revenue. The following questions of law are urged: I.T.T.A.No.120 of 2003 1. Whether on the facts and in thecircumstances of the case the Tribunal iscorrect in law in holding that the alleged saletransaction of diamonds worth Rs.12,73,028/-as claimed by the assessee is a genuinetransaction? 2. Whether on the facts and in thecircumstances of the case, the Tribunal iscorrect in law in holding that the amount ofRs.12,73,028/- cannot be added u/s.68 ofI.T.Act? 3. Whether on the facts and in thecircumstances of the case the Tribunal iscorrect in directing the Assessing Officer notaggregate the sum of Rs.2,10,000/- being theassessee’s share from M/s. Basant Farms forrate purposes?” I.T.T.A.Nos.132and 229 of 2003 1.Whether on the facts and in the circumstances of thecase the Tribunal is correct in law in holding that thealleged sale transaction of diamonds worthRs.51,92,750/- as claimed by the assessees, is a genuine transaction? 2. Whether on the facts and in thecircumstances of the case, the Tribunal iscorrect in law in holding that the amount ofRs.12,73,028/- cannot be added u/s.68 ofI.T.Act? 3. Whether on the facts and in thecircumstances of the case the Tribunal iscorrect in directing the Assessing Officer notaggregate the sum of Rs.2,10,000/- being theassessee’s share from M/s. Basant Farms forrate purposes?” I.T.T.A.Nos.132and 229 of 2003 1.Whether on the facts and in the circumstances of thecase the Tribunal is correct in law in holding that thealleged sale transaction of diamonds worthRs.51,92,750/- as claimed by the assessees, is a genuine transaction? 2.Whether on the facts and in the circumstances of thecase, the Tribunal is correct in law in holding that theamount of Rs.51,92,750/- cannot be added u/s.68 ofI.T.Act?case, the Tribunal is correct in law in holding that theamount of Rs.51,92,750/- cannot be added u/s.68 ofI.T.Act? 3.Whether on the facts and in the circumstances of thecase the Tribunal is correct in directing the AssessingOfficer not to add aggregate the sum of Rs.3,75,000/-,each, being the assessees’ share from M/s. BasantFarms for rate purposes?”case the Tribunal is correct in directing the AssessingOfficer not to add aggregate the sum of Rs.3,75,000/-,each, being the assessees’ share from M/s. BasantFarms for rate purposes?” Heard the learned counsel for the appellant and learnedcounsel for the respondents. It is a matter of record that all the three assesses madeseparate voluntary disclosures of their income, in response to ascheme and they were also issued the certificates. Most of the itemsmentioned in the disclosures are jewellery of gold and diamonds. For one reason or the other, the family thought of selling away thejewellery. In the process, the diamonds were separated from goldand while the gold was sold at Hyderabad, diamonds were sold atSurat. The resultant sale proceeds were shown as ‘capital gains’ inthe respective returns for the assessment year 1998-99. TheAssessing Officer was satisfied as regards the proceeds from thesale of gold. The controversy is only about the sale of diamonds. The starting point for the doubt of the Assessing Officer wasas to the very separation of diamonds from jewellery. The next wasabout the actual sale at Surat. It may be true that the respondentsdid not declare the diamonds in their unused and unembeddedform. When jewellery of such a huge value is declared, it isaxiomatic that the items of jewellery are studded with diamonds andother precious stones. No effort was made to have a detailedaccount of the nature of jewellery that was declared. There is nodispute that what was declared by the respondents was in the formof ornaments. It is just unthinkable that the ornaments of such huge value and quantity would be in the form of pure gold. There is ample evidence to show that all the three assesseshave sold the diamonds, that are separated from the jewellery, atSurat. It is a place known for voluminous business in diamonds. Notonly the particulars of the persons, who purchased the diamondswas furnished, but also the manner of payment was disclosed. Theentire payments were through demand drafts. The cross verificationundertaken by the Assessing Officer, did not result in noticing of anydiscrepancy. The bank accounts of the purchasers were verified andthe demand drafts issued to the respondents, towards consideration,corresponded to the entries in the bank accounts. value and quantity would be in the form of pure gold. There is ample evidence to show that all the three assesseshave sold the diamonds, that are separated from the jewellery, atSurat. It is a place known for voluminous business in diamonds. Notonly the particulars of the persons, who purchased the diamondswas furnished, but also the manner of payment was disclosed. Theentire payments were through demand drafts. The cross verificationundertaken by the Assessing Officer, did not result in noticing of anydiscrepancy. The bank accounts of the purchasers were verified andthe demand drafts issued to the respondents, towards consideration,corresponded to the entries in the bank accounts. Unable to find any discrepancy in such important aspects, theAssessing Officer started the verification of travel particulars of therespondents. The record discloses that the sale of diamonds did nottake at a time and it was in a phased manner. The purchaser wasundoubtedly a dealer in diamond. Even assuming that on certainoccasions, the corresponding assessee did not proceed to Surat, itcannot be a factor to disbelieve the transaction. When not only therespondents have disclosed the wealth in VDIS, but also haveshown sale proceeds as ‘capital gains’, it was far fetched, if notunreasonable, on the part of the Assessing Officer, to doubt theirhonesty in this behalf. For all practical purposes, the AssessingOfficer subjected the respondents herein to a verification equivalentto the one which is made by the police officials vis-à-vis a person,who committed the crime. Though it is prerogative of the State tolevy tax, referable to its sovereign power, it cannot be extended tothe level of regulating the conduct of a citizen to such minute extents. At any rate, the relief granted by the Tribunal is based itsfindings on pure question of fact. Even before us, no question of law is argued. Except that the Assessing Officer intended to treat thesale proceeds of jewellery under Section 68 of the Act, no otherprovision of law is invoked, nor any principle is projected. We, therefore, dismiss the appeals. There shall be no orderas to costs. The miscellaneous petitions filed in these appeals shall alsostand disposed of. ____________________ L.NARASIMHA REDDY, J. Date:16.09.2014L.R. copy to be marked. GJ _____________________ CHALLA KODANDA RAM, J.