Harbans Lal Sarna vs DCIT
Citation 109 TTJ 861 
 
Cash credits - Genuineness of sale - Sale of jewellery declared under VDIS
The assessee had sold the jewellery declared under VDIS within a short period after declaration to one 'RKE'.The sale price received was credited in books. The amount was received through cheque and an affidavit from director of RKE was filed. No adverse inference was drawn in this regard in the assessment of RKE made under s.143(3) of the Income Tax Act 1961.The assessee had discharged his onus. Only non-appearance by director of RKE before AO could not be held against the assessee. The cash credit was explained. No addition could be made under s.68 of the Act.

ITAT, Chandigarh

Harbans Lal Sarna vs DCIT

ITA No. 459/Chd/2005; Asst. yr. 1998-99

G.S. Pannu, A.M and Joginder Singh, J.M

28 February 2007

Tej Mohan Singh for the Appellant
J.R. Kajla for the Respondent

ORDERG.S. Pannu, A.M :

This appeal of the assessee is directed against the order of the CIT(A) dt. 10th March, 2005 pertaining to the asst. yr. 1998-99. In the memo of appeal the assessee has preferred multiple grounds of appeal but essentially a solitary issue involved is with regard to the addition of Rs. 8,77,196 representing sale of jewellery which has been held to be unexplained.

2. Briefly stated the facts are that the AO noted that the assessee had credited a sum of Rs. 8,77,196 as sale of jewellery to one M/s R.K. Exim (P) Ltd. (in short 'RKE'). The assessee claimed that he had declared such jewellery under the Voluntary Disclosure of Income Scheme, 1997 (in short the VDIS) which was later sold. A survey under s. 133A of the IT Act, 1961 (in short the Act) was conducted on the premises of RKE by the Investigation Wing, Delhi and search action under s. 132(1) was also carried out at the residential premises of one Shri Pardeep Kumar Gupta, director of RKE. On the basis of the information furnished by the Investigation Wing, Delhi to the AO of the assessee the impugned assessment has since been carried out. The Investigation Wing, Delhi had concluded that RKE gave accommodation entries to third persons and were not carrying out actual sale purchase of jewellery. On the basis of this information the ADIT, Investigation, Chandigarh recorded the statements of the assessee as well as his wife Mrs. Krishna Kumari and his son Shri Ajay Sarna. From the examination of the assessee, his wife and son the ADIT, Chandigarh inferred that there was no actual sale of jewellery by the assessee to RKE. On the basis of the aforesaid, the AO, in the course of assessment proceedings, show caused the assessee to explain why the amount shown as received from RKE should not be treated as income from undisclosed sources. The assessee however submitted that he had sold jewellery to RKE which was earlier declared under VDIS. The assessee also submitted for consideration of the AO an affidavit of Shri Pradeep Kumar Gupta, director of RKE confirming the transaction of purchase of gold jewellery from the assessee. In addition the assessee submitted copies of the assessment orders of RKE for the asst. yrs. 1997-98 and 1998-99 where in there was no adverse inference drawn with respect to the transaction of purchase with the assessee. The assessee also submitted copies of gold purchase voucher issued by RKE, weighment slips of the respective jewellery, copy of the ledger account of the assessee appearing in the books of M/s RKE etc. in support of the transaction. Before the AO the assessee also pointed out that once the observations of the Investigation Wing, Delhi did not find favour with the AO in case of RKE itself, there was no reason to use the same material against the assessee. The AO however noted in his assessment order that summons where issued under s. 131 of the Act requiring the presence of Shri Pardeep Kumar Gupta, Director of RKE and in response to which the said person did not appear. Instead a reply was furnished in response to the summons reiterating the position maintained by the assessee. The AO required the assessee to produce the said witness. The AO on the basis of the investigation conducted by the department at Delhi and the examination of the assessee, his wife and son did not accept the sale of jewellery to RKE as a genuine transaction. The AO inferred that there was no actual sale of jewellery but it was merely an accommodation entry provided to the assessee. He therefore treated the sale amount of Rs. 8,77,196 as income of the assessee from undisclosed sources. Aggrieved, the assessee carried the matter in appeal before the CIT(A). In appeal, it was contended by the assessee that the jewellery, in question was covered under the VDIS scheme and as such its possession was not in doubt; as a result the subsequent sale of such jewellery could not be doubted as the purchaser had duly confirmed the transaction. In support, the assessee also submitted the affidavit of the purchaser, balance sheet and PandL a/c for the relevant period of the purchaser along with other documents evidencing the sale purchase of jewellery namely, gold purchase vouchers, weighment slips etc. The assessee also submitted before the CIT(A) that it was upto the AO to summon Shri Pardeep Kumar Gupta, director of RKE or to issue commission to the AO at Delhi to make necessary enquiries with RKE with respect to the impugned transaction. The assessee maintained that the transaction was genuine. The CIT(A) however did not accept the pleas of the assessee. The CIT(A) accepted the position that the possession of jewellery was not in doubt. The CIT(A) records a finding that the onus was on the assessee to justify the sale of jewellery declared. He further held that the onus was on the assessee to produce the parties and therefore the omission on the part of the AO not to summon Shri Pardeep Kumar Gupta or non-issuing of commissions to the assessing authority at Delhi for enquiries, was not relevant. In any case, the CIT(A) concluded that the aforesaid inaction of the AO cannot be understood to mean that the transaction of sale stood explained. For the above and other reasons detailed in the order, the CIT(A) held that the assessee had failed to establish that the jewellery was sold to RKE, as claimed. The addition of Rs. 8,77,196 was accordingly sustained.

3. In the above background, the assessee is in appeal before us. We have heard both the parties in respect of the orders of the lower authorities with reference to the material placed on record before us. The appellant has submitted a paper book containing copies of submissions made before the lower authorities as well as the material in support of the transaction in question. The learned Departmental Representative has also filed a copy of the report of Investigation Wing, Delhi with regard to the investigations carried out in the case of RKE.

4. The first and the foremost argument of the learned counsel for the assessee is that the entire addition is based on mere suspicion that the sale transaction was bogus and not on the basis of any credible evidence. The learned counsel pointed out that the transaction in question stood confirmed by the purchaser company M/s RKE. and that the said transaction has also been accepted in the assessment proceedings of the purchaser. A reference has been made to the relevant papers placed in the paper book in support of the submissions. Our attention has also been invited to the affidavit filed by the director of the purchaser company, placed at p. 14 of the paper book. Similarly it is contended that the payment was paid by means of bank draft, which also appears in the bank statement of the purchaser company, which is placed in paper book at p. 12. Our attention has also been invited to the fact that in the case of wife of the assessee Smt. Krishna Kumari, also, the jewellery was sold to the same purchaser company which has been accepted by the Revenue. In support, our attention was invited to the return of income filed by the wife of the assessee Smt. Krishna Kumari with ITO, Ward 1(2), Chandigarh. It was, therefore, contended that the impugned addition is not maintainable.

5. On the other hand, the learned Departmental Representative has vehemently supported the order of the lower authorities by placing reliance on the same In addition, the learned Departmental Representative has submitted that there was adequate material to deduce that no actual sale of jewellery took place and that the purchaser company RKE merely provided accommodation entries. Our attention has also been invited to a copy of the report of ADIT (Investigation Wing) Delhi with regard to the affairs of M/s RKE. The learned Departmental Representative pointed out that during enquiries made by the Investigation Wing from the assessee, it transpired that the assessee was enable to describe the shop of RKE. It was pointed out that the explanation in this regard offered by the assessee was contrary to the fact position noted by the Investigation Wing, Delhi and for that matter referred to p. 17 of the report of the Investigation Wing, Delhi in this regard. With regard to the acceptance of similar sale transaction in the hands of Smt. Krishna Kumari, wife of the assessee, the learned Departmental Representative submitted that the said assessment has been made by the AO under s. 143(l)(a) in a summary manner and no scrutiny assessment has been carried out. That therefore, it does not reflect any conscious view of the AO that the transaction was above board.

6. We have considered the rival submissions carefully, The issue in this question relates to the authenticity of the sale of jewellery claimed to have been made by the assessee to RKE of a sum of Rs. 8,77,196. In principle, there cannot be a dispute to the proposition that the onus is on the assessee to adequately explain the amount credited on account of the said sale of jewellery. In this case the assessee has supported the sale on the basis of purchase voucher of the purchaser, copy of account of the assessee as appearing in the books of account of the purchaser, evidence of having received payment from the purchaser through banking channel etc. In addition to above evidences, the assessee also relied upon the affidavit of Mr. Pradeep Kumar, a director of the purchaser RKE wherein the transaction of sale of jewellery being 2,378.800 gms for a sum of Rs. 8,77,196 by the assessee is confirmed. Now, therefore, in the face of such evidence, prima facie the assessee appears to have discharged the initial burden cast on him. It is pertinent to note here that the onus which is cast on the assessee to explain the transactions of the instant nature, is not an absolute or static onus. In the course of the verification exercise, which is carried by the IT authorities, the onus keeps shifting. In the instant case, the aforesaid evidences led by the assessee prima facie supported his case. Now it was upto the AO to have brought on record material so as to negate the stand of the assessee. We find that the case of the Revenue is entirely based on report of ADIT (Investigation Wing), New Delhi. According to the Revenue, no actual sale of jewellery took place but it was merely an accommodation entry provided by RKE to the assessee. In this regard, the assessee, his wife and his son were examined by the Investigation Wing at Chandigarh. It is specifically noted by the Department that in the course of enquiries about the precise particulars of RKE, the stand of the assessee was ambivalent. Secondly, it is emphasized by the Revenue that the assessee has sold the jewellery in question immediately after declaring the same under VDIS. In this connection we find that the jewellery was declared by the assessee under VDIS on 12th Dec., 1997 and the same was accepted by the CIT under the VDIS on the same day. The jewellery was then sold to M/s RKE on 15th Dec., 1997 itself and the sale consideration was received by way of bank draft dt. 16th Dec., 1997. Merely because the jewellery has been sold within a short span of its declaration under VDIS cannot be a ground to negate the existence of sale, which is otherwise emergent from record. Even with respect to the evidence led by the Revenue, we do not find the same as adequate to dislodge the evidence led by the assessee in support of the transaction in question. The most potent evidence led by the Revenue is the report of the Investigation Wing, New Delhi. We have carefully perused the said report. The said report deals with M/s RKE, the purchaser company in question. The report notices that the said concern M/s RKE has effected purchases from persons who have declared jewellery under VDIS. In conclusion, however what has been recommended is further "investigations to find out if there was a genuine sale of assets" by various parties. Therefore, at best, the said report only required the AO in the instant case to carry out necessary investigations and thereafter come to a finding with respect to the genuineness of the impugned sale transactions. The said report by itself is not enough to be deduced against the assessee. Moreover, the assessing authority at Delhi has accepted the return of income filed by RKE for the asst. yrs. 1997-98 and 1998-99 in the course of assessment framed under s. 143(3) of the Act. The copies of said orders are placed at pp. 16 and 17 of the paper book. This aspect was very much before the AO and also before the CIT(A). We do not find that any effort has been made by the Revenue to controvert the aforesaid aspect. A fact position which emerges uncontroverted is that in the hands of RKE, no adverse inference has been drawn with respect to the purchase of impugned jewellery from the assessee seller. Therefore, it has to logically follow that the sale transaction in the hands of the assessee stood explained.

7. Another aspect of the matter is the finding by the CIT(A) that the onus was on the assessee to have produced Mr. Pradeep Kumar Gupta, the director of RKE in the course of assessment proceedings. In our view, this finding is misplaced having regard to the entire conspectus of facts and circumstances of the impugned case. In the instant case, as we have noticed, the AO issued summon under s. 131 to the said" Mr. Pradeep Kumar Gupta and in response to it, none appeared. However, in response to the summons, Mr. Pradeep Kumar Gupta submitted an affidavit and other material confirming the transaction of sale of jewellery by the assessee. Having received such material on record and also the fact that the assessment of the purchaser company stood concluded without any adverse inference, the onus clearly shifted on to the Revenue. Now, the onus was on the AO to lead evidence to demolish the case of the assessee. No adequate and credible evidence has been brought on record by the AO. The said Mr. Pradeep Kumar Gupta has been subjected to a search operation by the Revenue under s. 132(1) of the Act and the investigations have also been carried out with respect to RKE and therefore, it was entirely the responsibility of the Revenue to have carried out verification and culled out material contrary to the position canvassed by the assessee. There is no clinching material or evidence against the assessee. The confirmation from M/s RKE was before the AO. The said concern has not been found to be bogus or non-existent. In fact RKE is a company incorporated under the provisions of the Companies Act, 1956 and is an existing income-tax payer on the records of the Revenue. Its identity and existence, therefore, cannot be washed away. Therefore, under such circumstances, the non-appearance of Mr. Pradeep Kumar Gupta, director of M/s RKE, before the AO cannot be held against the assessee so as to draw adverse inference with respect to the impugned transaction. This is especially in the light of the fact that the transactions with the assessee have been accepted by the Department in the assessment proceedings of the purchaser company, as noted by us in the earlier paras.

8. Another aspect which has a bearing on the case is that similar transaction of sale of jewellery was noted by the Revenue in the case of one Shri Anil Talwar, Chandigarh. In the case of Anil Talwar the Tribunal in ITA No. 621/Chd/2002 vide order dt. 16th Sept., 2005 has accepted the sale transaction as genuine. The learned counsel appearing before us has vehemently contended that the factual matrix in the instant case stands on similar footing to that in the case of Anil Talwar (supra). On this aspect, we find that even before the AO, the assessee has submitted that similar transaction in the case of Anil Talwar (supra) was approved by the CIT(A). Subsequently, the decision of CIT(A) has since been endorsed by the Tribunal in its order dt. 16th Sept., 2005 (supra). We have perused the said decision of the Tribunal and notice that the reasons weighing with the Revenue to reject the sale transaction are similar to those taken by the AO in the instant case. The Tribunal, after considering the entire material on record and the circumstances held that the sale of jewellery stood explained. The Tribunal was satisfied with the same set of evidence and material with respect to RKE that is presently before us. Thus, we are inclined to uphold the stand of the assessee.

9. For the above reasons, we conclude by holding that in the face of the material and facts found on record, the assessee can be said to have discharged his onus of explaining the genuineness of the sale of jewellery amounting to Rs. 8,77,196 to M/s RKE in the instant year.

10. In the result, we set aside the order of the CIT(A) and direct the AO to delete the addition.

11. In conclusion, the appeal of the assessee stands allowed.