Cash credit : S. 68 of Income-tax Act, 1961 : A.Y. 1998-99 : Sale of jewellery declared under VDIS 1997 and capital gain offered to tax : Addition of whole of consideration for sale u/s.68 as unexplained cash credit : Not justified.

[CIT v. Uttamchand Jain (Bom.), ITA No. 634 of 2009,
dated 2-7-2009 (Not reported)]

The respondent assessee had declared diamond jewellery
weighing 65.75 carats under the Voluntary Disclosure of Income Scheme, 1997 (VDIS,
1997). The said declaration was accepted by the Department and a certificate
was issued to the assessee under VDIS, 1997. In the return of income filed by
the assessee-respondent for the A.Y. 1998-99 the assessee had claimed to have
sold the said jewellery declared under VDIS, 1997 to M/s. Dhananjay Diamonds
on 20-1-1999 for Rs.10,35,562 and the resultant long-term capital gain of
Rs.1,75,520 was offered to tax. The return was accepted u/s.143(1)(a) of the
Income-tax Act, 1961 on 23-7-1999.

On 31-3-2000, in the course of a survey, the statement of
Mr. Vishnudatt Trivedi, proprietor of M/s. Dhananjay Diamonds was recorded,
wherein Mr. Trivedi stated that he was not doing actual business of trading
and manufacture of diamonds and that the transactions reflected in his books
of account were merely accommodation entries given to various VDIS declarants.
As per the statement Mr. Sanjay Saxena, a resident of Kalyan used to visit Mr.
Trivedi with cash and only a description of the diamonds and not the actual
diamonds. The cash given by Sanjay Saxena was deposited in one of the bank
accounts of Mr. Trivedi and thereafter purchase bills as well as cheques were
issued in the names of the parties furnished by Mr. Sanjay Saxena towards the
sale price of the diamond jewellery declared under VDIS, 1997 allegedly sold
by those parties. Based on the said statement of Mr. Trivedi the assessment of
the assessee for A.Y. 1998-99 was reopened on 16-5-2001 and in the course of
the reassessment proceedings Mr. Trivedi appeared before the Assessing Officer
and made a statement on oath confirming the purchase of diamonds from the
assessee and that the assessee was not introduced to him by Mr. Sanjay Saxena.
However, the Assessing Officer made the entire amount of Rs.10,35,562 as
undisclosed income of the assessee, which was originally claimed and accepted
as sale proceeds of the diamond jewellery declared under VDIS, 1997. The CIT(A)
upheld the addition and held that the statement of Mr. Trivedi was backed by
the evidence of non-existence of diamond jewellery at the time of survey,
allegedly purchased by Mr. Trivedi and the cash deposits made in the bank
accounts of Mr. Trivedi before issuing cheques to various parties.

In appeal, two Members of the Tribunal differed in their
view and the matter was referred to the third Member. In the light of decision
of the third member, the appeal filed by the assessee was allowed and the
addition was deleted.

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

“(i) At the outset, we may note that the certificate
issued by the Revenue under VDIS, 1997 to the effect that the assessee had
diamond jewellery weighing 65.75 carats continues to be valid and
subsisting. In fact, no proceedings have been initiated so far to cancel the
certificate issued to the assessee under VDIS, 1997.

(ii) As the VDIS, 1997 certificate issued by the
Department is valid and subsisting, it is not open to the Revenue to contend
that there was no jewellery which could be sold by the assessee on
20-1-1999. It is not the case of the Revenue that the assessee continues to
be in possession of the said diamond jewellery even after the sale effected
on 20-1-1999 or that the said jewellery has been sold to third parties. In
these circumstances, the decision of the Tribunal in accepting the claim of
the assessee that the amount of Rs.10,35,562 represented the sale proceeds
of the diamond jewellery declared under VDIS, 1997 cannot be faulted.

(iii) The fact that the diamond jewellery claimed to have
been sold by the assessee was not found with the purchaser (Dhananjay
Diamonds) or his associates cannot be held against the assessee, because,
admittedly, the said diamond jewellery declared under VDIS, 1997 is also not
found with the assessee after the sale is effected. If existence of the
diamond jewellery with the assessee prior to the sale is evidenced by the
VDIS, 1997 certificate and on sale of the said jewellery the assessee has
received the consideration which is duly accounted for, then the mere fact
that the jewellery sold by the assessee is not found with the purchaser
cannot be a ground to hold that the transaction was bogus and the
consideration received by the assessee was the undisclosed income of the
assessee.

(iv) The decision of the Assessing Officer in discarding
the sale and holding that the amount received by the assessee from Mr.
Trivedi represented the undisclosed income of the assessee is based on
conjectures and surmises and is not based on any independent evidence
gathered prior to or during the course of reassessment proceedings. In these
circumstances, in the absence of any cogent evidence brought on record, the
decision of the Tribunal in holding that the Assessing Officer has failed to
established the nexus between the cash amount deposited in the bank account
of Mr. Trivedi is attributable to the cheque issued by Mr. Trivedi in favour
of the assessee cannot be faulted.

(v) Consequently, the decision of the Tribunal in
deleting the addition of Rs.10,35,562 cannot be faulted.”