Loading judgment…
Facts
The assessee, engaged in textile trading, filed her return of income. The AO noticed discrepancies in capital account balances and a claim of Long Term Capital Gain on diamond sales. The AO treated a portion of the capital account difference and the entire sale proceeds as unexplained income.
Held
The Tribunal held that the CIT(A) was correct in deleting the additions made by the AO. The assessee had provided a gift deed and other evidence for the capital addition, and sufficient documentation for the diamond sales, discharging her initial burden.
Key Issues
Whether the additions made by the AO for unexplained capital account difference and sale proceeds of diamonds were justified, considering the evidence provided by the assessee.
Sections Cited
68, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Shri T.R. Senthil Kumar & Shri Makarand Vasant Mahadeokar
The ACIT, Varshaben Dhirajbhai GNR Circle, Koradiya Gandhinagar Vs 2954, Juna Gunj Bazar, Thakorwas, Tharad Gujarat-385565 PAN: ABNPK6583G (Appellant) (Respondent) Revenue Represented: Shri Waghe Prasadrao, Sr.D.R. Assessee Represented: Shri Rasesh Shah, A.R. Date of hearing : 06-05-2025 Date of pronouncement : 23-05-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Revenue as against the appellate order dated 16-08-2024 passed by Commissioner of Income Tax [Appeals], National Faceless Appeal Centre arising out of the assessment order passed under section 143[3] of the Income Tax Act, 1961 [hereafter referred as the Act] relating to the Assessment year 2016-17.
Brief facts of the case is that the assessee is an individual and engaged in the business of trading of Textiles. For the Asst. Year 2016-17 the assessee filed her original return of income on Page No 2 ACIT Vs. Varshaben Dhirajbhai Koradiya 23.03.2017 declaring total income of Rs.17,46,570/-. During the course of assessment proceeding the AO noticed that there was difference in opening balance of capital account amounting to Rs.2,48,60,376/- in as much as the closing balance in capital account as on 31.03.2015 was Rs.2,30,65,819/- whereas opening balance as on 01.04.2015 was Rs.4,81,25,160/-. Further the AO noticed that the assessee claimed Long Term Capital Gain of Rs.12,92,714/- on sale of diamonds having original cost of Rs.1,15,00,000/-. Since, the sale consideration was declared at Rs.7,85,07,000/-, the assessee was asked why not to treat balance Rs.7,72,14,286/- as income from other sources.
2.1. In response the assessee furnished explanation vide letters dated 10.12.2018 and 13.12.2018 stating that the cost of diamond was taken at Rs.1.15 cr. as per valuer’s report and also furnished confirmations from the Purchasers of diamonds. So far as the difference in the balance of capital account was concerned, it was pointed out that the main source of increasing capital was the sale of investments in as much as Rs.6,70,07,000/- were shown by way of profit on sale of investment. The copy of capital account with balance sheet etc. were filed.
The AO, in the absence of any investment in diamonds shown in the earlier years, concluded that the increase of Rs.2,50,59,341/- was treated as unexplained income u/s 68 of the Act. Further, the AO disbelieved the assessee’s claim of sale of diamonds worth ₹7,85,07,000/- during the year. Though the assessee offered long- term capital gain of ₹12,92,714/- on such sale, the AO held that Page No 3 ACIT Vs. Varshaben Dhirajbhai Koradiya the entire consideration was unexplained and liable to be assessed as ‘income from other sources’ of the Act. Thus the Ld AO completed the assessment u/s.143(3) by making total additions of ₹10,35,66,341/- and demanded tax thereon.
Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A), who noted that the assessee had produced a gift deed dated 23.08.1988 evidencing receipt of diamonds from her husband on the occasion of the first birthday of her son. It was further demonstrated that the diamonds worth Rs.1.15 crores were sold during the year and remaining diamonds worth ₹1.35 crores were reflected in the balance sheet as on 31.03.2016 and also the capital gain arising on sale was offered to tax.
4.1. With respect to the sale of diamonds, the Ld. CIT(A) observed that the assessee furnished confirmations from 49 buyers, PAN details, her own and buyers’ bank statements, and a letter from Axis Bank confirming the transaction trail. Further, there was no rebuttal by the AO either in assessment order or during appellate proceedings on the genuineness or creditworthiness of the donor or the buyers of diamonds. Further the Ld AO failed to discharge his burden to establish that the gift was bogus or that the sale consideration was unexplained. Therefore, relying upon the decision of the Hon’ble Supreme Court in CIT v. P. Mohanakala [2007] 161 Taxman 169 (SC), the Ld. CIT(A) held that the assessee had discharged the initial burden cast under section 68 of the Act and in the absence of any cogent material brought on record by the AO, both additions were deleted by the Ld CIT[A].
Page No 4 ACIT Vs. Varshaben Dhirajbhai Koradiya
Aggrieved against the appellate order the Revenue has raised general grounds challenging the deletion of both additions u/s.68 on the ground that the Ld. CIT(A) erred in appreciating the facts and the evidence, and that the AO had rightly concluded the transactions to be unexplained.
We have heard the rival submissions and perused the materials available on record. The central issue for consideration is whether the additions made by the AO under section 68 for the unexplained capital account difference and alleged sale proceeds of diamonds were justified in law. 6.1. On the capital addition of ₹2.50 crores, we find that the assessee had submitted a valid gift deed executed by her husband on the occasion of the first birthday of her son, whose PAN card was annexed to show the proof of date of birth. Thus, there was no dispute about the identity of the donor and the AO did not doubted about the creditworthiness or occasion for the gift. However, the addition was made merely on the ground that the diamonds were not recorded in earlier balance sheet. But the assessee has explained the omission as inadvertent, since the diamonds received as gift valuing to the extent of Rs.1.15 crores were sold during the year [5440.2 carats] and the balance Rs.1.35 crores [6359.8 carats] were still lying with the assessee as at the end of the year which is evident from the copy of the balance sheet as on 31-03-2016 which was submitted during the course of assessment proceedings. It is appropriate to reproduce the replies letter dated 12-12-2018 and 20-12-2018 filed by the assessee before the Assessing Officer as follows:
Page No 5 ACIT Vs. Varshaben Dhirajbhai Koradiya “With reference to notice dated 06/12/2018 regarding Assessment proceedings for A.Y. 2016-17 1 would like to inform yourself:
1.
Difference in Closing Balance:Annexure A Vide notice dated 06/11/2018, your goodself has asked to furnish documentary evidences in respect of Opening Difference of capital account amounting to Rs 2,48,60,376/-. In this connection, it is humbly submitted that the said mistake has happened due to oversight and the difference amount pertains to gift received. In respect of the said gift received, I wish to furnish copy of Gift Deed in order to explain identity, creditworthiness of Donor & Genuineness of the transaction Referred Gift Deed will help your goodself to understand the transaction in better terms.
2. LTCG on Sale of Diamonds: Further, your goodself has asked for explanation of value for Original Cost of Diamonds taken for calculation of Long Term Capital Gain, in this connection, I would like to inform you that, value for Cost of Diamond is taken as per Valuation Report obtained from the Valuer. Valuation Report will be provided if required by your goodelf. ………………………………… 1. Original Cost of Diamonds and Consideration received: Your goodself has asked for explanation of value for Original Cost of Diamonds taken for calculation of Long Term Capital Gain, in this connection, I have already informed you that, value for original Cost of Diamond i.e. Rs. 1,15,00,000/- is taken from the Valuation Report obtained from the Valuer. Valuation Report for the same is attached herewith for your perusal. Further for sales consideration on sale of Diamonds, I have already provided the confirmations from all the parties to whom I have sold the diamonds.”
Further the assessee also substantiated the claim by offering LTCG on their sale. The Ld AO neither doubted about the credit worthiness, identity of the donor nor the occasion for the gift, thus the assessee discharged its primary onus cast upon it clearly.