Cash credit : Undisclosed income : S. 68 of I. T. Act, 1961 : Disclosure of diamonds in declaration under VDIS : Subsequent sale of diamonds and receipt of consideration by cheque : Receipts shown in books of account is not undisclosed income.

[CIT vs. Inder V. Nankani (Bom); ITA No. 128 of
2009 : Dated 24.02.2009].

The assessee had disclosed diamonds in a declaration under
VDIS. He subsequently sold the said diamonds and received consideration by
cheque. The amount received was shown in the books of account. The Assessing
Officer treated the sale consideration as undisclosed income and made addition
of the said amount to the total income of the assessee. The Assessing Officer
held that the assessee was unable to prove that he was actually in possession
and ownership of the diamonds. It is the case of the Revenue that these were
hawala transactions which were unearthed on the raid being conducted on the
two chartered accountants. The Tribunal deleted the addition.

On appeal by the Revenue, the Bombay High Court upheld the
decision of the Tribunal and held as under :

“i) The entire submission on behalf of the Revenue is
that the first purchaser has in fact sold the diamonds to the second
purchaser whose whereabouts could not be traced and as such, the sale was
fictitious. The question is whether the order of the CIT(A) and ITAT suffers
from any error of law.

ii) In the instant case, admittedly the diamonds were
declared. The declaration was accepted by the Revenue and thereafter, the
assessee had paid the tax. The assessee thereafter had sold the said
diamonds and received consideration which is also disclosed in the books of
account. In these circumstances, the finding recorded by the Tribunal cannot
be faulted, namely, that the assessee had proved the possession of the
jewellery or diamonds at the time of declaration.

iii) In the instant case, the Assessing Officer was given
an opportunity to produce any material in his possession to hold to the
contrary. The Assessing Officer failed to comply with the said direction. In
these circumstances, CIT(A) proceeded to pass the order which order came to
be subsequently affirmed by the ITAT.

iv) The Tribunal in the instant case has held that the
assessee had disclosed the diamonds in his possession at the time of VDIS
declaration which was accepted. Once that be the case and the consideration
received from the purchaser which has not been doubted, the fact that there
is doubt about the second sale, cannot result in making addition in the
hands of the assessee.

v) In our opinion, considering the findings of facts in
the case, this is not a fit case where question of law would arise.”