BHURAT SUNILKUMAR (HUF) V. INCOME TAX OFFICER W-2(2)

ITA/100005/2018

AI Insights

The case revolves around the appellants, Bhurat Sunilkumar (HUF) and Bhurat Anilkumar (HUF), who had declared gold and diamond jewellery under the Voluntary Disclosure of Income Scheme (VDIS) 1997. The jewellery was later smelted and sold, and the appellants declared negative income from these sales in their tax returns for the Assessment Year 1998-99. The Income Tax Officer rejected the capital gains income from these sales, charging the entire sale consideration as income under Section 68 of the Income Tax Act. The appellants' appeals to the Commissioner of Income Tax and the Income Tax Appellate Tribunal were unsuccessful, leading to this appeal in the High Court. The High Court found that the appellants had discharged their burden of proof and that the Tribunal had erred in not applying the principles established in similar cases.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 755014 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 30-07-2019
• Assessment Year: misc
• Other Referred Cases: ITA No.102/BANG/2016, ITA No.103/BANG/2016, ITA No.105(B)/2016, ITA No.1509/BANG/2015, ITA No.77/Bang/2016, ITA No.80/Bang/2016, ITA No.81/Bang/2016, ITA No.84/Bang/2016, ITA No.107/Bang/2016, ITA No.108/Bang/2016, ITA No.109/Bang/2016, ITA No.111/Bang/2016, ITA No.133/Bang/2016, ITA No.139/Bang/2016, ITA No.283/Bang/2016, ITA No.431/Bang/2016, ITA No.137/Bang/2016, ITA No.82/Bang/2016, ITA No.42/Bang/2016
• Laws Referred To: Income Tax Act, 1961, Voluntary Disclosure of Income Scheme (VDIS) 1997
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: Y V RAVIRAJ
• Assessee Lawyers: A SHANKAR; MANOJ PUKALE
• Keywords: Affidavit; Assessment Year 1998-99; Capital Gains; Income tax appellate tribunal; Income Tax Return; Jewellery; Valuation report; VDIS; Voluntary Disclosure of Income Scheme; Smelting; Goldsmith
• Section: 139; 260A; 65(1); 68(2)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 30th DAY OF JULY, 2019 BEFORE THE HON’BLE MR.JUSTICE ARAVIND KUMAR & THE HON’BLE MR. JUSTICE P.G.M.PATIL I.T.A.Nos.100005-100006/2018 BETWEEN: 1. BHURAT SUNILKUMAR (HUF) PAN: B-268/W-2(2) (AACHB0752Q) OCCUPATION: BUSINESS MOBILE: [phone] EMAIL: [e-mail]. 2. BHURAT ANILKUMAR (HUF) PAN:B-268/W-2(2) (AADHB3038C) OCCUPATION: BUSINESS MOBILE: [phone] EMAIL: [e-mail] Present address for 1 & 2: SHANTI NIWAS, BHURAT BUILDING, SHETTAR ONI HIREPETH HUBBALLI-580 028. ... APPELLANTS (BY SRI. A. SHANKAR SR. COUNSEL AND SRI. MANOJ D PUKALE) AND: INCOME TAX OFFICER W-2(2) CRB., ITO., NAVANAGAR, P.B. ROAD, HUBBALLI -580025 2 EMAIL: HUBLI.IOT.1.1@ INCOME TAX.GOV.IN ...RESPONDENT (BY SRI. Y.V. RAVIRAJ, ADVOCATE) THESE ITAs ARE FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT DATED 11.08.2017 VIDE ITA NOS.2095 AND 2096/BANG/2016 TO THE EXTENT URGED IN THE APPEAL. THESE ITAs HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ARAVIND KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT Though matter is listed for Admission, by consent of learned Advocates appearing for parties, we have heard the appeal on merits by formulating the following substantial questions of law: (i) Whether the weight of jewellery as declared by the appellants-assessee under Voluntary Disclosure of Income Scheme – VDIS as per valuation reports ‘B’ & ‘C’ is same as claimed by the assessee by relying on the invoices – Annexures – ‘F’ & ‘G’? (ii) Whether tribunal was correct in not relying upon the decisions rendered by it in ITA No.102/BANG/2016, ITA 3 No.103/BANG/2016, ITA No.105(B)/2016 and ITA No.1509/BANG/2015 under facts identical as pleaded by the appellants in the instant case? BACKGROUND OF THE CASE: 2. Appellants voluntarily disclosed gold and diamond jewellery under Section 65(1) of VDIS 1997, which was accompanied by a valuation report in respect of declared items, reflecting itemwise weight with other particulars. The declaration as submitted by the appellants came to be accepted by the Commissioner of Income Tax and a Certificate under Section 68(2) of VDIS 1997 came to be issued. 3. Appellants filed income tax returns for Assessment Year-1998-99 under Section 139 of the Income Tax Act, 1961 (for short ‘IT Act’) by declaring negative income from sale of above said VDIS declared gold and diamond jewellery items, which gold had been converted into bullion after smelting and separating the diamonds through a goldsmith - M/s. Balaji Refinery, 4 represented by its Proprietor Sri. Chaganlal. During the scrutiny assessment, affidavit of the goldsmith was also produced by the assessees to prove the fact of smelting. Valuation reports which was accompanying the declaration and which had been accepted by the Commissioner of Income Tax, were also produced in the said assessment proceedings. Original purchase invoices for sale of above VDIS in favour of M/s. Shree Mahalakshmi Jewellers and M/s. Sheetal Exports were also produced. However, assessing officer rejected the capital gains income from sale of VDIS declared items and entire sale consideration of the said items came to be charged to tax under Section 68 of the IT Act by assessment order dated 26.03.2001. Appeal filed by the assessee before Commissioner of Income Tax as well as appeal preferred before the Income Tax Appellate Tribunal being aggrieved by the rejection of appeal by CIT(A), also did not yield any result and both the appeals came to be dismissed. Hence, this appeal by the assessees. 5 4. We have heard the arguments of Sri. A. Shankar, learned Senior Counsel appearing for Sri.Manoj D. Pukale for appellants and Sri.Y.V.Raviraj, learned panel counsel appearing for respondent. We have perused the orders under challenge. 5. Findings of the authorities to reject the claim of appellants was on the ground that tenants - Balaji Refinery, Mahalakshmi Jewellers and Sheetal Exports, who had smelted the gold belonging to appellants were not occupying the premises reflected in the invoices. It was also held that assessees had not examined any person from the above said jewellery firms to establish gold declared under VDIS had been smelted by him. It was also held that description of gold purity, diamond carat, colour and cut are not mentioned in the sale invoices. It is also held that affidavit of Chaganlal – Proprietor of M/s.Balaji Refinery had no evidentiary value. In this background, substantial questions of law requires to be adjudicated and answered. 6 FINDINGS ON SUBSTANTIAL QUESTIONS OF LAW 1 & 2: 6. The undisputed facts are that appellants had filed declaration under Section 65(1) of VDIS 1997 on 05.11.1997, enclosing valuation reports which reflected the entire details of jewellery declared by the appellants, its weight, design and all other incidental details. Said declaration came to be accepted by Commissioner of Income Tax (Appeals) under Section 68(2) of IT Act on 07.11.1997. Said gold is said to have been smelted after diamonds being removed by the assessees through M/s. Balaji Refinery, Hubli and bullion so smelted was sold to Shree Mahalakshmi Jewellers (Annexures-‘F’ and ‘G’). To substantiate that gold was smelted by M/s. Balaji Refinery, Hubli, affidavit (Annexure-D) of its Proprietor Sri. Chaganlal also came to be filed. In fact, weight of the items sold were also produced together with copies of bank drafts and payments received by the appellants on the said items. Yet, assessing officer did not accept the same, for the reason aforestated. If at all, assessing officer was of the view that declaration 7 made by the assessees is incorrect, on the premise that shops had not been occupied by them namely, address shown in the purchase invoice and sale bills, had not yet been occupied by the respective jewellers and have relied upon any other evidence, it was mandatory for the assessing officer to confront the said evidence to the assessees and after eliciting the say of assessees, he could have either rejected the same or accepted. However, such an exercise was not undertaken. But on the other hand, evidence which is said to have been collected during the course of enquiry, is sought to be used against assessees to disallow the claim without extending any opportunity to assessees to rebut the same. It is not the case of the assessing officer that either the weight or gold sold by the assessees after smelting is different from the jewellery declared by the assessees in their declaration filed under Section 65(1) of VDIS 1997. In fact, initial burden cast on the assessee has been discharged by establishing and proving that sold items were the items which had been declared by them under VDIS 1997. 8 7. In fact, under similar circumstances arising out of declaration filed by assessees Sri.Bijendra G. Agarwal and Smt. Kailash Devi G. Agarwal, who had raised similar contentions, had come up for consideration before the tribunal, who had also got the jewellery declared by them smelted through M/s. Balaji Refinery, Hubli and sold the same to Shree Mahalakshmi Jewellers (Gold) and loose diamonds in favour of Sheetal Exports. Assessing officer in the said cases had obtained a letter from the Gold and Silver Refinery Welfare Association, Hubli, wherein it was indicated that no such refinery existed. This finding was not accepted by the tribunal and at paragraph 15 the tribunal, it came to be recorded in ITA No.102/BANG/2016 and ITA No.103/BANG/2016 by its order dated 30.06.2016 to the following effect: “15. What we note is that all the items which were appearing in bill issued by M/s. Balaji Refinery were also mentioned in the valuation report filed in support of the VDIS declarations. Gross weight also tallies. Purchase invoice issued by the concern which purchased the gold and diamonds also shows that same 9 weight of bullion as mentioned in the bill of M/s. Balaji. Refinery and same caretage of diamonds marked in the valuation report. Case of the Revenue is that M/s. Balaji Refinery, which melted the ornaments and the concern to which the gold/bullion were sold were not found in Keshvapur, Hubli. Assessees were repeatedly questioned about this during the course of second round of proceedings. Inspector’s report relied on by the AO was based on an enquiry done more than 15 years after the event. There was no way assessees could ensure that M/s. Balaji Refinery continued to do its business all through. Much reliance has been placed by the AO on a letter issued by Gold and Silver Refinery Welfare Association, Hubli, wherein it was mentioned that no refinery called M/s. Balaji Refinery, did any refinery work in Hubli since 15 years. However, it is not necessary that every refinery should be member of an association. A glance at the bill issued by M/s. Balaji Refinery does show that it was holding a licence. A look at the purchase bill issued by the conerns namely Shri. Mahalaxmi Jewellery and M’s. Sheetal Exports, show that they were having KST and CST registration numbers. In my opinion, these evidence do tilt the case in favour of the assessees. Assessees had done whatever possible, within their means to show that the gold and diamond sold by them were the same gold and diamond declared in VDIS, after conversion. Assessees had submitted copies of bills issued by M/s. Balaji Refinery which did show similar details of gold and diamond as returned in the 10 VDIS. In such situation we are of the opinion that assessees had discharged their onus to show that the gold and diamond sold by them were the same which were declared by them in the VDIS declarations. Reasoning given by the AO that antique jewellery would not have been sold by the assessees is only a surmise and cannot dislodge the evidence filed by the assessee. Further there is nothing on record to show that the gold jewellery which were sold by the assessee were antique in nature. In such circumstances, I am of the opinion that the lower authorities fell in error in disbelieving the source for credits shown by the assessees concerned. I have no hesitation in deleting the additions made in the hands of the assessees.” (emphasis supplied by me) 8. It would be relevant to note at this juncture that in the matter of ITA No.105/(B)/2016 in case of RAMAVATAR S MAHAJAN vs I.T.O. disposed of on 18.11.2016, tribunal which was faced with the identical facts had dismissed the appeal of the assessee and confirmed the order of ITO/CIT(A) and held that assessee had failed to establish that sold diamonds are VDIS declared items on account of number of pieces of diamond, their size, cut and colour of the sold diamonds was not verifiable. However, assessee had filed 11 Misc.Petition No.91(B)/2016 which came to be allowed after having brought to the notice of the tribunal that claim of the assessee was similarly placed to that of assessee in the matter of SMT.MANJULADEVI. Thus, it is evident from the above orders, even in respect of other assessees who had filed declaration under Section 65(1) of VDIS 1997 during same period had enclosed the valuation reports as similar and identical to the valuation report filed by the present assessee and subsequently, they have also got the gold so declared smelted through Balaji Refinery and sold the bullion to M/s.Mahalakshmi Jewellers and diamonds to M/s.Sheetal Exports. Even in said case, assessee had got the gold smelted through Mahalakshmi Jewellers and assessing officer therein had questioned the source of amount deposited in Bank account of assessee, by rejecting the contention of the assessee that same is out of sale proceeds of jewellery and had treated the same as unexplained credit/investment, which is also the factual scenario in the instant case or in other words, the same exercise has been undertaken by the 12 assessing officer. However, tribunal had rejected the same and held that assessee had submitted copies of the bills issued by M/s.Balaji Refineries which did show similar details of gold and diamond as returned in the VDIS. Thereby, tribunal held that assessee had discharged their onus to establish that gold and diamond sold by them were the same items which had been declared by them in their VDIS declaration. The assessee in the instant case being similarly placed and gold having been smelted through Balaji Refinery and having sold the same to M/s.Mahalakshmi Jewellers, the chain of link stood established with regard to the gold/jewellery declared by the assessee under VDIS- 1997 on 05.11.1997 being the same items which had been got smelted by them through goldsmith M/s.Shree Balaji Refinery and then sold to M/s.Mahalakshmi Jewellery and M/s.Sheetal Exports. As such, tribunal was not justified in not applying the ratio of its own orders rendered in several matters which have been referred to herein above. In fact, tribunal in its various decisions rendered in respect of the assessees who are 13 similarly placed, who also contended that gold declared by them under VDIS had been smelted through Balaji Refinery and sold thereafter to Mahalakshmi Jewellers had been accepted in the following cases: Appeal Number Appellant Resp Order Dt ITA.77/Bang/2016 Sri Ghisulal Chopra ITO 30/06/16 ITA.80/Bang/2016 Smt Vimaladevi Doshi ITO 30/06/16 ITA.81/Bang/2016 Sri Shyam B Habib ITO 30/06/16 ITA.84/Bang/2016 Smt.Sabita Kallianpurkar ITO 30/06/16 ITA.107/Bang/2016 Kailash O Mahajan ITO 30/06/16 ITA.108/Bang/2016 Sri Parasmal J Jain ITO 30/06/16 ITA.109/Bang/2016 Sri Seshmal J Jain ITO 30/06/16 ITA.111/Bang/2016 Sri G W Bafna DCIT 30/06/16 ITA.133/Bang/2016 Kanchanbai M Jain ITO 30/06/16 ITA.139/Bang/2016 Ramakant R Sharma ITO 30/06/16 ITA.283/Bang/2016 Shri S Linganna DCIT 30/06/16 ITA.431/Bang/2016 M/s.Rittal India Pvt.Ltd DCIT 30/06/16 ITA.137/Bang/2016 Manjumala R Sharma ITO 04/07/16 ITA.82/Bang/2016 Sri Pukhraj D Jain, Hubli ITO 04/07/16 ITA.42/Bang/2016 Jayantilal P Jain ITO 31/08/16 9. In the light of above stated facts, we are of the considered view that tribunal committed a serious error in not accepting the sale invoices – Annexures-‘F’ and ‘J’ submitted by the assessee on the ground that it is not the same items which had been shown and declared by them in the VDIS declaration and the valuation report annexed to such declaration. It further 14 committed a serious error in not applying the ratio of its earlier decision to the facts on hand which were not only similar but also identical as it relates to the same Refinery who had smelted the gold declared by the assessee under VDIS-1997. Hence, we answer the substantial questions of law in favour of the assessee and against the Revenue. 10. For the reasons aforestated, we proceed to pass the following: ORDER (i) ITA Nos.100005-100006/2018 are allowed. (ii) Order dated 11.08.2017 passed by Income Tax Appellate Tribunal, Bangalore Bench ‘C’, Bengaluru in ITA No.2095/Bang/2016 and ITA No.2096/Bang/2016 for the assessment year 1998-99 is set aside and appeals filed by the assessees before Income Tax Appellate Tribunal, 15 Bengaluru Bench ‘C’, Bengaluru are allowed. (iii) No order as to costs. (Sd/-) JUDGE (Sd/-) JUDGE DR/sp "