SHASHI KANT CHAURASIA,DELHI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-27, NEW DELHI, DELHI

ITA 3845/DEL/2023

AI Insights

The case involves appeals by Shashi Kant Chaurasia against the orders of the Commissioner of Income Tax (Appeals)-37, New Delhi, which confirmed the additions made by the Assessing Officer under sections 68 and 69C of the Income Tax Act, 1961. The primary contention was regarding the treatment of the sale proceeds from diamonds, which were declared under the Income Declaration Scheme (IDS) 2016, as unexplained cash credits instead of long-term capital gains. The Tribunal found that the assessee had substantiated the existence and processing of the diamonds through various documents and responses from third parties, and thus, the gains should be classified as LTCG. The Tribunal also criticized the CIT(A)'s reliance on certain statements and the handling of the assessee's requests for cross-examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 36835 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2019-2020
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYA CHAUDHARY
• Assessee Lawyers: ASHWINI KUMAR
• Keywords: Capital asset; Opportunity of being heard; Unexplained cash credit; Fair market value; Document seized; Gift; Retraction; Capital Gains; Principle of natural justice; Search and seizure; Valuation report; Bogus
• Section: 251; 132; 153A; 68; 22; 133(6); 69C; 13; 274; 234B; 15; 264; 20

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA Nos. 3844 & 3845/Del/2023 (Assessment Years: 2018-19 & 2019-20) Shashi Kant Chaurasia, 575, 1st Floor, Double Storey, New Rajinder Nagar, New Delhi Vs. DCIT, Central Circle-27, New Delhi (Appellant) (Respondent) PAN:AAGPC6395Q Assessee by : Shri Ashwini Kumar, CA Shri Rohit Jain, Adv Ms. Deepashree Rao, Adv Shri Shivam Gupta, CA Revenue by: Ms. Jaya Chaudhary, CIT (DR) Date of Hearing 23/10/2024 Date of pronouncement 20/01/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeals of the assessee in ITA Nos. 3844 & 3845/Del/2023 for AYs 2018-19 and 2019-20, arise out of the order of the Commissioner of Income Tax (Appeals)-37, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 10469/2017-18 dated 31.10.2023 against the order of assessment passed u/s 153A of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 30.09.2021 by the Assessing Officer, DCIT, Central Circle-27, New Delhi (hereinafter referred to as „ld. AO‟). ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 2 2. Identical issues are involved in both these appeals and hence they are taken up together and disposed of by this common order for the sake convenience. The facts for AY 2018-19 and issues in dispute thereon are taken up for adjudication and decision rendered thereon shall apply mutatis mutandis for AY 2019-20 also except with variance in figures. 3. The assessee raised following concise grounds of appeal:- 1. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in assessing the income of the appellant vide order dated 30.09.2021 passed under section 143(3) r.w.s. 153A of the Income tax Act, 1961 (\"the Act\") at Rs.160.24,64,000 as against income of Rs. 149,47,78,770 declared by the appellant. 2. That the CIT(A) erred on facts and in law in confirming the addition of Rs.154,95,82,050, being gross consideration received on sale of diamonds, as unexplained credits under section 68 of the Act in place of long-term capital gains thereon of Rs. 144,46,86,075 being declared by the appellant in the return of income. 2.1 That the CIT(A) erred in not appreciating that sovereign/ statutory immunity granted to declaration made/ accepted under Income Declaration Scheme, 2016 (\"IDS\") could not be questioned and therefore, the addition was wholly without jurisdiction and bad in law. 2.2 That the CIT(A) erred in holding that gain arising from transfer of declared asset should be classified as short-term capital gain and not as long-term capital gain. 3. That the CIT(A) erred on facts and in law in confirming addition of Rs.27,89,248 under section 69C of the Act on account of alleged commission paid by the appellant. 4. That the CIT(A) erred in not holding that the assessment, having been completed/ made: (a) de-hors any incriminating material/ document found/ seized during search; (b) in gross ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 3 violation of provisions of section 153D of the Act; is illegal, bad in law and void- ab-initio. 5. That on the facts and circumstances of the case and in law, the CIT(A) erred in dismissing the appeal ex-parte, by relying on extraneous material, without considering detailed written submissions, rejoinder and contemporaneous documents filed and without affording adequate opportunity of being heard, in gross violation of principles of natural justice. 6. Without prejudice, the lower authorities erred on facts and in law in: (a) assessing gross consideration on sale of diamonds of Rs.154,95,82,050 as unexplained credit without allowing reduction/credit of Rs.49,42,79,680 being amount already declared under IDS; and (b)without allowing credit/ reduction of tax of Rs.22,24,25,856 on Rs.49,42,79,680 already declared under the IDS. 7. That the CIT(A) erred in confirming levy of interest under section 234B of the Act. 4. Ground No. 1 raised by the assessee is general in nature and does not require any specific adjudication. 5. Ground Nos. 2 to 2.2 raised by the assessee are challenging the action of the ld CIT(A) in confirming the treatment of sale consideration received on sale of diamonds as unexplained cash credits u/s 68 of the Act. 6. We have heard the rival submissions and perused the material available on record. The assessee is an individual and had filed his return of income for the assessment year 2018-19 declaring income of Rs.149,47,78,770, comprising of income from „salary‟, „business and profession‟, „house property‟, „capital gains‟ and „other sources‟. Search and seizure operation u/s 132 of the Act was carried out on 15.01.2020 at the premises of the assessee and his family members. During the ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 4 course of search operation, statements of the assessee and his family members were recorded under section 132(4) of the Act. Further, a search and seizure operation was also purportedly carried out on 27.01.2020 at the residence of one third party, viz., Sh.Yogendra Raj Singhvi (hereinafter referred to as „Sh. Singhvi‟) at his farm-house/ residence at Ajmer, Rajasthan, wherein statement of Sh. Singhvi was recorded under section 132(4) of the Act. In the return of income, the assessee had declared Long Term Capital Gains („LTCG‟) of Rs.144,46,86,075/- on transfer of cut and polished diamonds. 7. The assessee claimed to have sold these items in the year under consideration for a total amount of Rs. 154,95,82,050/-. The ld AO sought for the details in this regard from the assessee vide notice u/s 142(1) of the Act issued from time to time. In response to the said notice, the assessee filed all the requisite details available in its possession before the ld AO. It would be relevant to note that the assessee had declared diamonds under Income Declaration Scheme (IDS) 2016 vide chapter IX of Finance Act, 2016 by filing a declaration on 13.09.2016 of 12857.07 carats of rough diamonds. The assessee submitted that these diamonds declared were received as gift from grandfather and were held since 1994 and declared as such in the IDS Declaration. This declaration was made based on valuation report dated 22.08.2016 from the registered valuer determining fair market value of diamonds as on 01.06.2016 at Rs. 49,42,79,680/-. The assessee pleaded that this valuation report was furnished by the registered valuer after physical inspection of the diamonds which fact is also mentioned in the valuation report. The assessee paid tax of Rs. 22,24,25,856/- on the IDS Declaration @45% on fair market value of diamonds declared thereon. This declaration made by the assessee under IDS 2016 was duly ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 5 accepted by the ld. Pr. Commissioner of Income Tax (PCIT) and a certificate stood issued by the ld PCIT dated 07.10.2017 in Form 4 to the assessee. By this process, the declaration made by the assessee in IDS 2016 declaring 12857.07 carats of rough diamond had attained finality. 8. The assessee during the year under consideration sold processed i.e. cut/polished diamonds for a sum of Rs 154,95,82,050/- on which LTCG of Rs 144,61,64,063/- was duly offered to tax by the assessee in the return of income. The ld AO doubted the existence of rough diamonds with the assessee per se and proceeded to treat the sale consideration of cut and polished diamonds of Rs.154,95,82,050/- as unexplained cash credits u/s 68 of the Act by making the following observations and allegations:- a)The assessee and his family members failed to establish the source of acquisition and existence of diamonds, which were processed and thereafter sold, gains in respect of which was declared in the return of income; b)The assessee was unable to establish/corroborate that diamonds were actually processed [cut, polished etc.] in so far as : i. There was no proof of payment made to vendor/job-worker to process diamonds; ii. No details were furnished with respect to color, cut, clarity of the diamonds ; and iii. Identity and genuineness of vendors/job-workers remained to be established. c)The assessee was unable to establish / corroborate the transaction of sale of processed diamonds in so far as: i. in the ex-parte statements of Sh. Singhvi and one Sh. Nemi Chand Kawadia (in short “Sh.Kawadia”), it was alleged that the assessee had undertaken bogus transactions; ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 6 ii. the assessee failed to establish the identity and genuineness of the buyers and such parties did not appear to be financially credible. 9. Since the receipt of sale consideration of diamonds was treated as bogus by the ld AO by adding it u/s 68 of the Act, consequentially the ld AO also added commission expenditure @ 0.18% of sale consideration u/s 69C of the Act in the sum of Rs 27,89,248/-. 10. The aforesaid action of the Ld AO was upheld by the ld CITA by observing that diamonds were not declared in any income tax or wealth tax return by the assessee earlier. In fact, findings of ld CIT(A) are self- contradictory as initially the existence of diamonds has been accepted and sale transaction also accepted to be genuine by holding that the gains accruing on sale of diamonds should be treated as short term gains, but thereafter proceeded on a completely different premise to hold, without any cogent/ reliable basis, the same to be a bogus transaction. 11. The ld AR filed detailed written submissions before us and he drew our attention to the various facets covered thereon and rebutted the entire allegations of the lower authorities by facts and figures. Per Contra, the ld DR submitted that the ld CITA never held that the gains on sale of diamonds to be LTCG or STCG and that the ld CITA had merely commented about the declaration made by the assessee in IDS 2016 and the same cannot be considered as sacrosanct. The ld DR submitted that the sale of diamonds (as claimed by the assessee) was never proved by the assessee before the lower authorities. He argued that the ld AO had relied on certain whatsapp chats of Sh Singhvi which are in pages 57 to ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 7 60 of the assessment order and that assessee had not proved the relationship with him and Sh Singhvi and further the customers to whom the sale of diamonds were made by the assessee were also not proved to be genuine. With these arguments, the ld DR heavily defended the orders of the lower authorities. 12. At the outset, we hold that the existence of rough diamonds with the assessee cannot be doubted at all as admittedly the assessee had made declaration fo 12857.07 carats of diamonds in IDS 2016 and a certificate in Form NO. 4 dated 7.10.2017 was issued by the ld PCIT admitting the same after ensuring that the assessee had paid due tax thereon in the sum of Rs 22,24,25,856/-. This Certificate in Form No. 4 is enclosed in Page 18 of the Paper Book. Either way, dehors the IDS 2016, it is a fact that the rough diamonds of 12857.07 carats of rough diamonds had been brought into the books by the assessee after making payment of taxes of Rs 22,24,25,856/-. 13. We hold that the statutory scheme of IDS declaration enacted by the Finance Act 2016 considered along with all subsequent clarifications (such as CBDT Circular No. 26 dt 30.6.2016, CBDT Circular No. 29 dt 18.8.2016 and Press Release dated 2.9.2016) clearly provides that IDS declaration is to be treated as conclusive proof of matters contained therein and binding on all the parties including the regulatory authorities. Hence the existence of rough diamonds to the extent of 12857.07 carats cannot be doubted by the revenue. If it is doubted, then the purpose of making payment of taxes of Rs 22.24 crores gets defeated. We hold that that IDS 2016 declaration cannot be doubted by the revenue in the light of sovereign commitment given by the Government of India. Further the observation of ld CITA that diamonds were not declared in earlier ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 8 income tax or wealth tax returns by the assessee is absurd in view of the fact that the assessee had made the declaration of undisclosed asset under IDS 2016 and the same has been accepted by the ld PCIT by issuing Form No. 4 thereon. If the diamonds had earlier been declared in any tax returns, then why the assessee would even come forward to declare the same in IDS 2016. This argument of the revenue is simply absurd and only indicates the pre-determined mind in order to reach the pre-determined destination of taxing the receipt of sale consideration by any means whatsoever. 14. It is a fact that assessee had got the rough diamonds processed by cutting , polishing etc from following 4 job workers in Surat which resulted in 2231.12 carats of processed diamonds:- (i) Rujal Anil Shah (HUF) – Prop. Aarushi Gems (ii) Nareshbhai Babulal Dhami (HUF) – Prop. Beena Impex (iii) Adesh Nareshbhai Dhami (HUF) – Prop. Niti Impex (iv) Nikunj N Kahar – Prop. Misty Enterprises 15. The fact that processing of rough diamonds were undertaken by the assessee in assessment year 2017-18 is duly borne out of the invoices in support of the payments made to the job- workers, confirmations filed by the job workers along with their respective ITRs, proof of actual payments made to the job-workers as reflected in the bank statement of the assessee. These documents were duly furnished by the assessee before the lower authorities which fact is not in dispute. 16. It is submitted that substantial portion of the processed diamonds were sold by the assessee for a total consideration of Rs.154,95,82,050/- in the relevant assessment year 2018-19 to the following four (4) parties:- ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 9 (i) Bhairav Gems Pvt. Ltd. (ii) Garima Exports (iii) Gurudev Corporation (iv) Yogi Diam The long-term capital gains of Rs.144,61,64,063/- arising on account thereof was duly offered to tax in the return of income. The ld AR even placed on record the sale of processed diamonds made by the assessee in subsequent assessment years 2019-20 to 2020-21 and the assessee received total consideration of Rs.323,30,50,550/- on sale of diamonds in assessment years 2018-19 to 2020-21. The details of LTCG tax paid on sale of those diamonds are tabulated hereunder:- Assessment year Sale Amount( Rs.) Taxable LTCG(Rs.) Tax paid on LTCG(Rs.) 2018-19 154,95,82,050 144,46,86,075 34,22,46,131 2019-20 106,21,64,750 97,80,50,623 23,39,49,709 2020-21 62,13,03,750 55,60,81,456 15,84,60,972 Total(Rs.) 323,30,50,550 297,88,18,154 73,46,56,812 17. Further we find that the assessee had substantiated the genuineness of sales made to 4 parties by furnishing the sale invoices, confirmations directly filed by the parties before the ld AO along with their respective ledger accounts, stock register, bank statements evidencing the credit on account of receipt of sale consideration, ITRs etc . 18. It is pertinent to note that assessee had acquired the rough diamonds by way of gift from grandfather and that the diamonds (both rough as well as processed diamonds), were always kept in lockers maintained by the assessee and other family members for safe keeping and this fact has categorically been affirmed/ confirmed by all the family members and the assessee in their respective statements:- ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 10 - Relevant extracts of statement of the assessee dt. 15.01.2020 is enclosed in Pages 739 to 765 of Paper Book; - Relevant extracts of statement of Sh. Mayank Chaurasia dt. 15.01.2020 is enclosed in Pages 857 to 867 of Paper Book; - Relevant extracts of statement of Sh. Navneet Chaurasia dt .15.01.2020 is enclosed in Pages 815 to 833 of Paper Book; - Relevant extracts of statement of Sh. Rajiv Chaurasia dt. 16.01.2020 is enclosed in Pages 896 to 904 of Paper Book; - Relevant extracts of statement of Sh. Vijay Anand Chaurasia dt. 15.01.2020 is enclosed in Pages 868 to 879 of Paper Book. 19. We find that all the family members, in their separate statements, categorically and consistently confirmed the following fundamental facts, without any contradiction:- (a) That they were in possession of diamonds, which was inherited by them; (b) That the diamonds were declared under IDS 2016 and tax paid thereon; (c) That the diamonds were cut/ polished; (d) That the polished diamonds were sold resulting in taxable long- term capital gains, which were declared in the tax returns. 20. Now coming to the statement of Sh Kamla Kant Chaurasia , we find that the ld AO, in the impugned assessment order, has sought to draw adverse inference in respect of the very existence of the diamonds by placing reliance on statement dated 16.01.2020, of Sh. Kamla Kant Chaurasia (father of assessee) wherein he purportedly stated that he was not aware of the diamonds. The ld AR before us submitted that the ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 11 aforesaid statement of Sh. Kamla Kant Chaurasia cannot be the basis for disputing the transactions due to the following reasons:-  He was non-resident for many years;  At the time of recording of statement, due to his old age coupled with ill-health and fading memory, was not in a position to recollect the facts correctly in respect of inheritance of diamonds;  He did not receive the diamonds from his father and therefore, was not necessarily required to be aware of distribution by his father to other family members;  His statement was subsequently clarified by him vide certificate dated 25.09.2021 which is enclosed in Pages 946 to 947 of the Paper Book;  The assessee was primarily in charge of managing the day-to-day financial affairs of the family and was solely involved in processing the rough diamonds and sale of cut and polished diamonds;  Other members of Chaurasia family in their respective statements recorded during search have confirmed the aforesaid facts. 21. In fact, findings of ld CIT(A) are self-contradictory as initially the existence of diamonds has been accepted and sale transaction also accepted to be genuine by holding that the gains accruing on sale of diamonds should be treated as short term gains, but thereafter proceeds on a completely different premise to hold, without any cogent/ reliable basis, the same to be a bogus transaction. We are in complete agreement with this argument of the ld AR that the statement of Shri Kamla Kant Chaurasia is not to be relied upon in the facts of the instant case as it is contrary to the cogent evidences placed on record by the assessee. 22. We find that the expenditure in respect of cutting and polishing of ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 12 diamonds was undertaken by the assessee in the immediately preceding assessment year 2017-18, wherein no adverse inference has been drawn by the ld AO. What was declared by the assessee in IDS 2016 was only rough diamonds. Hence the said diamonds are to be processed in order to fetch better pricing in the market, thereby making the processing of diamonds imperative . Moreover, the price of diamonds is dependent upon its various features, size, colour, clarity grading , fineness/ cutting shape etc. It is a fact that processing of rough diamonds into cut and polished diamonds was undertaken by the assessee through various parties, which details in comprehensive manner were duly furnished by the assessee as under:- - Complete details of parties including contact particulars of the job workers; - Ledger accounts of the job-workers enlisting the expenses and payments; - Copies of invoices issued by the job-workers; - Copies of bank statements of the assessee highlighting the payments made to the job-workers – entire payment was made through banking channels. 23. The details of contemporaneous documents filed by the assessee party wise in respect of 4 job workers for Assessment Year 2018-19 are as under:- (i) AarushiGems:  Copy of ledger account enclosed in Page 237 of Paper Book  Copy of bill/invoice & inspection memo enclosed in Pages 238 to 239 of Paper Book  Copy of bank statements from which payment was made ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 13 enclosed in Page 240 of Paper Book  Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act – providing details of nature of business, address, transaction details with assessee and copy of ITRs enclosed in Pages 241 to 246 of Paper Book (ii) Beena Impex:  Copy of ledger account enclosed in Page 247 of Paper Book  Copy of bills/invoices & inspection memo enclosed in Pages 248 to 251 of Paper Book  Copy of bank statements from where the payments were made enclosed in Page 252 of Paper Book  Copy of clarification dated 26.09.2021 along with acknowledgment filed in support of change of address of Niti Impex and Beena Impex enclosed in Pages 253 to 264 of Paper Book  Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act – providing details of nature of business, address, transaction details with assessee and copy of ITRs enclosed in Pages 265 to 270 of Paper Book  Copy of letter dated 26.09.2021 filed by the assessee who apprised the ld AO that due to dilapidated conditions of the building, the office of Beena Impex had shifted , details of which are enclosed in Pages 983 to 993 of Paper Book (iii) NitiImpex:  Copy of ledger account enclosed in Page 271 of Paper Book ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 14  Copy of bill/invoice & inspection memo enclosed in Pages 272 to 273 of Paper Book  Copy of bank statements from which payment was made enclosed in Page 274 of Paper Book  Copy of clarification dated 26.09.2021 along with acknowledgement filed in support of change of address of Niti Impex and Beena Impex enclosed in Pages 275 to 276 of Paper Book  Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act – providing details of nature of business, address, transaction details with assessee and copy of ITRs enclosed in Pages 287 to 292 of Paper Book  Copy of letter dated 26.09.2021 filed by the assessee who apprised the ld AO that due to dilapidated conditions of the building the office of Niti Impex had shifted – enclosed in Pages 983 to 993 of Paper Book. (iv) Misty Enterprise:  Copy of ledger account enclosed in Page 293 of Paper Book  Copy of bills/invoices& inspection memo enclosed in Pages 294 to 297 of Paper Book  Copy of bank statements from where the payments were made – enclosed in Pages 298 to 299 of the Paper Book  Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act – providing details of nature of business, transaction details with assessee and copy of ITRs enclosed in Pages 300 to 301 of Paper Book. ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 15 24. In so far as the specific allegations of the ld AO in respect of processing of diamonds are concerned, the same was rebutted by the ld AR as under:- (a) Allegation that the assessee failed to provide any details in respect of communication made with the parties who undertook cutting and polishing work done. It was submitted that the transaction took place in the Assessment Year 2017-18 i.e more than 3 to 4 years before the search was undertaken and the assessee could not have been expected to retain the communication trail with the said parties. Further, communication by way of telephone calls, text messages and personal meetings cannot practically be documented as expected by the ld AO. Further, the assessee has provided all documents in support of the transaction in the form of copies of invoice, ledgers and payment trail to corroborate the genuineness of the transaction. (b) Allegation that the assessee failed to provide copy of bank statement in support of the payment trail. The aforesaid allegation is factually incorrect. It was emphatically submitted that the assessee had, vide submissions filed on various dates before the ld AO, duly furnished copy of bank statements wherein the payments made to the job workers was specifically covered as stated hereinabove. (c) Allegation that the assessee did not even recollect the names of the job workers in so far as the name of the parties stated during the course of statement was different from the details file during the course of assessment. It was submitted that as already explained above, the transaction was undertaken more than 3-4 years ago and the assessee could not have been expected to accurately remember names of all the parties, more so when he transacts with various persons day in and day out. ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 16 It is of utmost importance to note that to verify the identity and genuineness of the job- workers, the ld AO independently issued notices u/s 133(6) of the Act to the said parties, which, as a matter of fact, was duly responded to by the said parties confirming that they undertook job work in the nature of cutting, polishing of diamonds in the financial year 2016-17. (d) At pages 29-31 of the assessment order, the ld AO has made reference to Inspectors‟ report to allege that the three job workers namely: (i) Aarushi Gems, (ii) Niti Impex, and (iii) Beena Impex never existed at the stated premises. In this regard it was submitted that only limited extracts of the ex-parte Inspector‟s report have been reproduced in the assessment order and copy of the same has never been provided to the assessee till date, which was in gross violation of principles of natural justice, and the assessee is, therefore, unable to provide an effective rebuttal to the same. Even otherwise, factual rebuttal to the aforesaid allegation is specifically provided at Pages 1076 to 1156 of Paper Book, being the detailed submission filed before the ld CITA. 25. It is pertinent to note here that notices issued by the ld AO u/s 133(6) of the Act were not only served but also responded to by the job workers directly before the ld AO leaving no scope for any doubt at all that the parties actually exist and had undertaken the job of cutting and polishing of diamonds. Hence the existence of rough diamonds with the assessee together with the activity of processing of rough diamonds into cut and polished diamonds is proved beyond reasonable doubt by the assessee herein. 26. We find that the ld AO had also alleged that the transaction of sale of diamonds is also not genuine. We are unable to comprehend ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 17 ourselves to accept to this allegation of the revenue in as much as the the customers to whom cut and polished diamonds were sold by the assessee had directly responded before the ld AO by furnishing direct replies / evidences in response to notice issued u/s 133(6) of the Act confirming and submitting the following:- (i) having purchased diamonds from the assessee; (ii) ledger accounts and information with respect to quantity and weight of diamond purchased ; (iii) stock register along with relevant extract of stock register; (iv) party-wise purchase and sale register (including PAN and address of the party); (v) detailed list of sundry debtors through whom funds were received for the purchase of diamonds along with bank statement and GST return (GSTR – 1); (vi) copy of ITR, computation of income, Tax Audit Report, audited financial statements along with copy of income tax returns; (vii) bank statements of accounts from where payments were made to the assessee; (viii) ledger account of parties to whom the diamonds were sold after purchasing them from the assessee along with their PAN and address. 27. The details of contemporaneous documents filed party wise in respect of sales made by the assessee during the year under consideration are as under:- (i) Garima Exports:  Copy of ledger account enclosed in Page 302 of Paper Book  Copy of purchase confirmation enclosed in Page 303 of Paper Book ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 18  Copy of bank statement in which the sale proceeds were received enclosed in Page 304 of Paper Book  Copies of KYC and business profile of the parties enclosed in Pages 305 to 309 of Paper Book  Details of Permanent Account Number (PAN) enclosed in Page 310 of Paper Book  Details of Aadhaar card enclosed in Page 311 of Paper Book  Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act – providing copy of ledger accounts, transaction details, stock register, bank statement, financial statements, GST return, ITR, Ledger account of parties to whom the diamonds were sold after purchasing them from the assessee along with their PAN and address etc enclosed in Pages 319 to 417 of Paper Book. (ii) Gurudev Corp.:  Copy of ledger account enclosed in Pages 418 to 422 of Paper Book  Copy of purchase confirmation enclosed in Pages 423 to 449 of Paper Book  Copy of bank statement in which the sale proceeds were received enclosed in Pages 450 to 462 of Paper Book  Copies of KYC and business profile of the parties enclosed in Pages 463 to 467 of Paper Book  Details of PAN enclosed in Page 468 of Paper Book  Copy of Aadhar card enclosed in Page 469 of Paper Book  Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act – providing copy of ledger accounts, transaction details, stock register, bank ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 19 statement, financial statements, GST return, ITR etc enclosed in Pages 470 to 589 of Paper Book. (iii) Yogi Diam:  Copy of ledger account enclosed in Pages 590 to 591 of Paper Book  Copy of purchase confirmation enclosed in Pages 592 to 597 of Paper Book  Copy of bank statement in which the sale proceeds were received enclosed in Pages 598 to 603 of Paper Book  Copies of KYC and business profile of the parties enclosed in Pages 604 to 607 of Paper Book  Details of PAN enclosed in Page 608 of Paper Book  Copy of Aadhar card enclosed in Page 609 of Paper Book  Copy of response filed by the party to notice issued u/s 133(6) (received under RTI) of the Act – providing copy of ledger accounts, transaction details, stock register, bank statement, financial statements, GST return, ITR etc enclosed in Pages 610 to 686 of Paper Book. (iv) Bhairav Gems:  Copy of ledger account enclosed in Pages 687 to 691 of Paper Book  Copy of purchase confirmation enclosed in Pages 692 to 718 of Paper Book  Copy of bank statement in which the sale proceeds were received enclosed in Pages 719 to 729 of Paper Book  Copies of KYC and business profile of the parties enclosed in Pages 730 to 734 of Paper Book  Details of PAN enclosed in Pages 735 to 736 of Paper Book ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 20  Copy of passport enclosed in Page 737 of Paper Book  Copy of Aadhar card enclosed in Page 738 of Paper Book 28. We find that the sale of diamonds made by the assessee to the aforesaid customers cannot be even remotely doubted in as much as those parties had directly responded to the notice issued u/s 133(6) of the Act by furnishing the contemporaneous documentary evidences as listed above. It is not the case of the revenue that the parties to whom the assessee had made sales are related to him in any manner whatsoever. Hence they are independent third parties and transactions were carried out with them at arm‟s length in the ordinary course of business. The assessee need not ascertain the financial capacities of these customers as he had not borrowed any loan or not received any share capital / premium from them. On the contrary, the assessee‟s interest would be only to receive the sale proceeds of diamonds from the said parties for the sales effected to them. 29. From the above, it could be seen that the existence of rough diamonds with the assessee together with the activity of processing of rough diamonds into cut and polished diamonds and sale of those cut and polished diamonds to third party customers is proved beyond reasonable doubt by the assessee herein. 30. With regard to the search action conducted in the premises of Sh. Singhvi on 27.1.2020 and one Sh. Kawadia on 3.3.2020 wherein statements were recorded from them u/s 132(4) of the Act, the ld AO ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 21 had sought to draw adverse inference on the assessee herein merely by placing reliance on the said statements, despite the fact that there is no data / document seized from them which in an way directly or indirectly incriminates the assessee herein. Infact Sh. Singhvi , a third party, had merely stated that he knew the assessee as an acquaintance in certain social gatherings and had no financial transactions with assessee. Further the ld AR pointed out that statement of Sh. Singhvi was recorded on 27.1.2020 during the course of search under duress / pressure and his only daughter‟s wedding was scheduled on 30.1.2020 and hence in order to complete the search proceedings, he at the end of his statement had stated that all transactions are bogus. But we find that soon after the marriage ceremonies were completed, Sh. Singhvi on 4.2.2020 itself i.e. within one week from the date of search, had retracted his statement clearly explaining the reasons and circumstances under which the said statement was recorded. This retraction statement is enclosed in Pages 155 to 161 of the Paper Book. 31. Similarly even the statement of Sh. Kawadia who also gave statement u/s 132(4) of the Act during his search stating that the transactions are bogus, had retracted vide letter dated 9.2.2021 which is enclosed in Pages 231 to 234 of the Paper Book. 32. Hence it could be safely concluded that no reliance in any manner whatsoever , could be placed on the statements of Sh. Singhvi and Sh. Kawadia to draw adverse inference against the assessee herein. In any event, the revenue had not even bothered to verify as to whether there was any financial transactions between the assessee and Sh. Singhvi and Sh. Kawadia. Factually there is none. This was not controverted by the revenue. On the contrary, the assessee was confronted with the selective portion of the statements recorded u/s 132(4) of the Act of Sh. ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 22 Singhvi and Sh. Kawadia . Assessee sought for furnishing of complete copy of the statements recorded from these two parties, which was denied. Even the cross – examination of these two parties which were sought for by the assessee. The ld AO fixed the date of cross examination of these two parties on 20.9.2021 without furnishing the full text of the statements recorded from them, on which date, the assesee‟s authorized representative was present and both the parties failed to appear before the ld AO. Hence these two parties, having become department‟s witnesses, failed to appear for cross-examination before the ld AO. Again on 21.9.2021, the assessee requested the ld AO to provide cross examination of these two parties after providing legible copy of statements recorded from them. Again another request was made by the assessee on 26.9.2021. Copies of the statements were provided to the assessee only on 10.11.2021 at the fag end of completion of assessment proceedings. The ld AO however mentioned that no further opportunity to cross-examine the above-named witnesses will be provided stating that the assessee had failed to avail the opportunity of cross-examination and due to time- barring nature of the matter. We have already dealt this aspect hereinabove that those two parties, being department‟s witnesses, had failed to appear for cross examination on the appointed dates before the ld AO and no fault could be attributed on the part of the assessee thereon. Despite that fact, the ld AO had stated that cross-examination will not be provided to the assessee. For this reason also, no reliance in any manner whatsoever could be placed on the statements of these two parties. In view of this fact, we hold that there is absolutely no need to give any credence to the statements recorded from these two parties and no adverse inference in any manner whatsoever could be drawn on the assessee herein , using those statements. Accordingly, the various other arguments advanced ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 23 by the ld AR and ld DR before us about the veracity of the contents in the statements of these two parties, need not be gone into. 33. As stated hereinabove, the existence of rough diamonds, processing of rough diamonds into cut and polished diamonds and sale of cut and polished diamonds had been proved by the assessee beyond reasonable doubt with contemporaneous documents in the instant case. The assessee had declared the gains arising on sale of diamonds as LTCG in the return of income. The ld CITA vide para 7.12 at page 31 of impugned order dated 31.10.2023, contrary to the primary allegation of doubting the very existence of diamonds, concluded that since the said diamonds were declared by the assessee under IDS 2016, the period of holding of such diamonds needs to be construed from 01.06.2016 and not from the actual date of their acquisition. While holding so, the ld CITA relied upon CBDT Circular No. 29 of 2016 dated 18.08.2016 read with subsequent clarification dated 19.08.2016. Accordingly, the ld CITA observed that capital gains arising on sale of the diamonds should be classified as „short term capital gains‟ instead of „long term capital gains‟ as declared by the assessee in his return of income. 34. The aforesaid conclusion of ld CITA is self-contradictory, completely misplaced, illegal and arbitrary as the same operates in contravention to Explanation 1(i)(b) of section 2(42A) of the Act which specifically provides that in case of assets acquired by way of gift, the period of holding shall include the period for which such assets were held by the previous owner. Since in the present case, the diamonds were gifted to the assessee by his grandfather in the previous year relevant to assessment year 1994-95, while computing capital gains, the period of holding should be construed accordingly. Thus, such diamonds shall fall ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 24 within the definition of „long term capital assets‟ and consequently, „long term capital gains‟ shall arise on their transfer. We find that the ld CITA had relied on CBDT Circulars referred supra to treat the gains arising on sale of diamonds as short term capital gains. In this regard, we find that the Circulars had taken oscillating positions with regard to the period of holding of assets which works contradictory to the existing provisions of the Act itself. Hence the provisions of the Act would prevail. The Explanation 1(i)(b) of Section 2(42A) of the Act clearly lays down the law regarding the period of holding of assets. Hence there is no need to place reliance on Circulars for this purpose. Either way, the Circulars are binding only on the revenue authorities and the same is not binding on the Tribunal. Reliance in this regard is placed on the decision of Hon‟ble Supreme Court in the case of Commissioner of Customs vs Indian Oil Corporation Ltd reported in 267 ITR 272 (SC). The date of 1.6.2016 would be relevant only for the limited purpose of valuation of undisclosed assets irrespective of the period of holding of the same. That date cannot be considered as a relevant date for the purpose of reckoning the period of holding of assets. Hence we hold that the period of holding of diamonds need to be reckoned from Assessment Year 1994-95 in terms of provisions of the Act and accordingly the resultant gain on sale of diamonds would have to construed only as Long Term Capital Gains in the facts and circumstances of the instant case. 35. In view of the aforesaid observations, we hold that the gains on sale of cut and polished diamonds is to be construed as LTCG which had already been offered to tax by the assessee in the return of income and the same cannot be treated as unexplained cash credit u/s 68 of the Act ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 25 in the facts and circumstances of the instant case. Accordingly, the Ground Nos. 2 to 2.2. raised by the assessee are allowed. 36. In view of our decision for Ground Nos. 2 to 2.2. above, the Ground No.3 raised by the assessee requires to be allowed as there is no question of treating the sale proceeds of diamonds as accommodation entries warranting incurrence of commission expenditure. Accordingly, the Ground No. 3 raised by the assessee is allowed. 37. No arguments were advanced by the ld AR regarding Ground No. 4 on the legal ground raised by the assessee. Hence the same is hereby dismissed as not pressed. 38. The Ground No. 5 raised by the assessee is general in nature and the same had already been adjudicated in Ground Nos. 2 to 2.2. hereinabove. 39. The Ground No. 6 raised by the assessee becomes infructuous in view of our decision given for Ground Nos. 2 to 2.2. hereinabove. 40. The Ground No. 7 raised by the assessee is challenging the levy of interest u/s 234B of the Act which would be consequential in nature. 41. In the result, the appeal of the assessee in Assessment Year 2018- 19 is partly allowed. ITA Nos. 3844 & 3845/Del/2023 Shashi Kant Chaurasia Page | 26 42. The grounds raised in Assessment Year 2019-20 are identical to Assessment Year 2018-19 and hence the decision rendered hereinabove shall apply mutatis mutandis for Assessment Year 2019-20 also except with variance in figures. 43. To sum up, both the appeals of the assessee are partly allowed. Order pronounced in the open court on 20/01/2025. -Sd/- -Sd/- (SAKTIJIT DEY) (M. BALAGANESH) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 20/01/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "