1 IN HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS 9TH DAY OF OCTOBER, 2019 BEFORE HON BLE MR. JUSTICE ARAVIND KUMAR PRESENT HON BLE MR. JUSTICE P.G.M.PATIL I.T.A.No.100025/2018 C/W I.T.A.Nos.100024/2018, 100062/2018, 100063/2018 IN I.T.A.No.100025/2018: BETWEEN: N.R. GANGAVATHI (HUF) REPRESENTED BY ITS KARTA/MANAGER C/O GANGAVATHI SILK PALACE DAJIBAN PETH, HUBLI 580 028 PRESENTLY CAMPING AT DHARWAD. ... APPELLANT (BY SRI. V. CHANDRASHEKAR, ADVOCATE FOR SRI. M. LAVA AND SHASHANK S HEGDE, ADVOCATE) AND: INCOME TAX OFFICER WARD -3 [2], HUBLI PRESENTLY JURISDICTIONAL AO INCOME TAX OFFICE WARD 1 (3), HUBLI. ...RESPONDENT (BY SRI. Y.V. RAVIRAJ, ADVOCATE) 2 THIS ITA IS FILED UNDER SECTION 260A OF INCOME-TAX ACT 1961, PRAYING TO FORMULATE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND ANSWER SAME IN FAVOUR OF APPELLANT AND TO ALLOW APPEAL AND SET ASIDE FINDINGS TO EXTENT AGAIST APPELLANT IN ORDER PASSED BY INCOME TAX APPELLANT TRIBUNAL, BANGALORE BENCH C , BANGALORE IN ITA NO,840/BANG/2016 DATED:22.12.2017 FOR ASSESSEMENT YEAR 1998-99 VIDE ANNEXURE-A. IN I.T.A.No.100024/2018: BETWEEN: BASAVARAJ KAMATGI (HUF) REPRESENTED BY ITS KARTA/MANAGER C/O GANGAVATHI SILK PALACE DAJIBAN PETH, HUBLI 580 028 PRESENTLY CAMPING AT DHARWAD. ... APPELLANT (BY SRI. V. CHANDRASHEKAR, ADVOCATE FOR SRI. M. LAVA AND SHASHANK S HEGDE, ADVOCATE) AND: INCOME TAX OFFICER WARD -3 [2], HUBLI PRESENTLY JURISDICTIONAL AO INCOME TAX OFFICER WARD 1(1), HUBLI. ...RESPONDENT (BY SRI. Y.V. RAVIRAJ, ADVOCATE) THIS ITA IS FILED UNDER SECTION 260A OF INCOME-TAX ACT 1961, PRAYING TO FORMULATE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND ANSWER SAME IN FAVOUR OF APPELLANT AND TO ALLOW APPEAL AND SET ASIDE FINDINGS 3 TO EXTENT AGAIST APPELLANT IN ORDER PASSED BY INCOME TAX APPELLANT TRIBUNAL, BANGALORE BENCH C , BANGALORE IN ITA NO.839/BANG/2016 FOR ASSESSEMENT YEAR 1998- 99 VIDE ANNEXURE-A. IN I.T.A.No.100062/2018: BETWEEN: BASAVARAJ KAMATGI (HUF) REPRESENTED BY ITS KARTA C/O GANGAVATHI SILK PALACE DAJIBAN PETH, HUBLI 580 028 PRESENTLY CAMPING AT DHARWAD. ... APPELLANT (BY SRI. V. CHANDRASHEKAR, ADVOCATE FOR SRI. M. LAVA AND SHASHANK S HEGDE, ADVOCATE) AND: INCOME TAX OFFICER WARD -3 [2], HUBLI. ...RESPONDENT (BY SRI. Y.V. RAVIRAJ, ADVOCATE) THIS ITA IS FILED UNDER SECTION 260A OF INCOME-TAX ACT 1961, PRAYING TO FORMULATE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND ANSWER SAME IN FAVOUR OF APPELLANT AND ALLOW APPEAL AND SET ASIDE FINDINGS TO EXTENT AGAIST APPELLANT IN ORDER PASSED BY INCOME TAX APPELLANT TRIBUNAL, BANGALORE BENCH C , BANGALORE IN MP NO.108/BANG/2018 FOR DATED 20.07.2018 FOR ASSESSEMENT YEAR 1998-99 VIDE ANNEXURE-A. 4 IN I.T.A.No.100063/2018: BETWEEN: N.R. GANGAVATHI (HUF) REPRESENTED BY ITS MANAGER C/O GANGAVATHI SILK PALACE DAJIBAN PETH, HUBLI 580 028 PRESENTLY CAMPING AT DHARWAD. ... APPELLANT (BY SRI. V. CHANDRASHEKAR, ADVOCATE FOR SRI. M. LAVA AND SHASHANK S HEGDE, ADVOCATE) AND: INCOME TAX OFFICER WARD -3 [2], HUBLI. ...RESPONDENT (BY SRI. Y.V. RAVIRAJ, ADVOCATE) THIS ITA IS FILED UNDER SECTION 260A OF INCOME-TAX ACT 1961, PRAYING TO FORMULATE SUBSTANTIAL QUESTION OF LAW AS STATED ABOVE AND ANSWER SAME IN FAVOUR OF APPELLANT AND TO ALLOW APPEAL AND SET ASIDE FINDINGS TO EXTENT AGAIST APPELLANT IN ORDER PASSED BY INCOME TAX APPELLANT TRIBUNAL, BANGALORE BENCH C , BANGALORE IN MP NO.109/BANG/2018 FOR ASSESSEMENT YEAR 1998- 99 VIDE ANNEXURE-A. THESE ITAs HAVING BEEN HEARD AND RESERVED, COMING ON FOR PRONOUNCEMENT OF JUDGMENT THIS DAY, ARAVIND KUMAR J., DELIVERED FOLLOWING: 5 JUDGMENT Though matters are listed for Hearing on Interlocutory Applications, by consent of learned Advocates appearing for parties, we have taken up appeals for hearing on merits and having heard, we are of considered view that following substantial questions of law would arise for our consideration: (i) Whether tribunal was correct and justified in law in arriving at conclusion that items sold by appellants were different from jewellery declared? (ii) Whether appellants had proved beyond reasonable doubts that sale of jewellery/goods were out of declaration made under Voluntary Disclosure of Income Scheme VDIS? BACKGROUND OF CASE: 2. Appellants in respective appeals are HUF and for assessment year 1998-99 filed its return reporting interest income and said returns came to be 6 processed under Section 143(3) of Income Tax Act, 1961 (for short Act ) by making additions. In exercise of power vested under Section 263 of Act Assessing Officer proceeded to assess and complete sale consideration as unexplained credits and made additions. Appellants being aggrieved by same, filed appeals before CIT (Appeals), Hubli, which was not entertained due to lack of jurisdiction and appeal filed to Appellate Tribunal also came to be dismissed. However, appeals filed by assessees before this Court was allowed and matter was remanded to file of Assessing Officer vide order dated 23.09.2008. 3. Assessing Officer on such order of remand called for details from assessees and during course of assessment having extracted details of jewellery declared and sale of bullion and diamonds made by assessees, has proceeded to hold that additions to capital assets were unexplained and not out of declaration made under 7 VDIS on ground that there was disparity in nomenclature of jewellery declared and goods/jewellery sold by order dated 23.12.2009 (Annexure-B). Appellants being aggrieved by same, filed appeal before CIT (Appeals), which came to be dismissed by order dated 30.11.2015/30.10.2015 (Annexure-C). 4. Assessees not being satisfied with order of CIT (Appeals) preferred further appeal before Income Tax Appellate Tribunal (for short ITAT/Tribunal ), which came to be dismissed by order dated 22.12.2017. Hence, these second appeals. 5. It is contention of Sri.A.Shankar, learned counsel appearing for appellants that authorities below as well as tribunal committed serious error in arriving at conclusion that there was difference between quantity of declared items and sold items without considering fact that appellants had declared gold jewellery, silver and diamonds embedded in 8 precious metals under VDIS Scheme-1997, which has been accepted by Revenue upon payment of requisite taxes and as such, doubting transaction afresh would not arise. He would also contend that appellants had filed copies of VDIS declaration and valuation report which described each item of jewellery along with gross and net weight, purity of jewellery and caratage of diamonds held by appellants on date of declaration as also invoice for conversion of gold and silver jewellery to bullion form, which established gross weight of jewellery converted and net weight received by appellants. 6. He would further contend that authorities below were not justified in doubting difference in quantity declared visa-vis quantities sold to form opinion that full quantity was not sold and same cannot be as same goods as declared under VDIS return. On these grounds he seeks for answering 9 substantial questions of law in favour of appellants and against Revenue. 7. Per contra, Sri.Y.V.Raviraj, learned counsel appearing for respondent/Revenue would support impugned orders and contends discrepancies are short fall between declared jewellery and bullion/diamonds sold was clearly visible by virtue of weight and said discrepancy having remained unexplained, disallowance is justified and hence, he prays for answering substantial questions of law in favour of Revenue by dismissing appeals. RE. SUBSTANTIAL QUESTIONS OF LAW - 1 AND 2: 8. Since these two questions are interlinked, they are taken up together for consideration, adjudication and answered as under: It is not in dispute that respective appellants/assessees having filed declarations under VDIS 1997 and same having been accepted by Department, including taxes paid thereon. Under 10 said VDIS assessees had declared gold jewellery, diamond jewellery, etc. and claim of assessees before Assessing Officer was that he/she converted jewellery items into gold and silver bullion after removing diamonds and had sold same. 9. As noticed herein above, order of remand which came to be passed was based on following decision of Coordinate Bench rendered in SMT. KAILASHI DEVI AGARWAL VS. ITO in ITA No.186/2004 rendered on 22.09.2008 and following same case of assessees in question namely, appellants herein were also remanded. ground on which remand order came to be passed as could be discerned from order dated 22.09.2008 passed in ITA No.186/2004 reads: 10. It is clear from perusal of material on record that xxxx is not in dispute. However, real question that was required to be decided by first appellate authority and assessing authority was to whether subject matter of sale transaction is in respect of goods that were subject matter of declaration filed 11 under Scheme 1997 which declaration has been admittedly accepted by revenue. If assessee xxxx and pass following: Thus, exercise which was to be undertaken by assessing officer was to ascertain whether gold and jewellery sold by assessees-appellants were same as declared under VDIS or not? By undertaking such exercise it has been held by Assessing Officer that what has been sold by assessee is gold bullion and silver bullion and what has been declared in VDIS is ornaments and as such assessees had not proved that what is sold under sale transaction is same as items declared under application filed under VDIS. Insofar as, diamonds are concerned it has been held that on account of VDIS declaration not containing details as to whether they were cut and polished diamonds and sale bill which has been relied upon by assessees disclosing they are cut and polished, it cannot be accepted. 12 10. There is no dispute to fact about appellants having declared gold jewellery, silver and diamonds which were embedded in said jewellery under VDIS 1997 which declaration has been accepted upon appellants paying requisite taxes. It is specific case of assessees that in order to fund its capital has converted jewellery acquired into standard bullion form and same was sold for which sale bills had been tendered before Assessing Officer. In fact, sale proceeds has been received by assessees through its bank which is not disputed by Revenue. invoice for conversion of gold and silver jewellery to bullion form demonstrates or establishes gross weight of jewellery converted and net weight received by appellants. documents filed in support of same were available before Assessing Officer and it is on record, which is not in dispute. In fact, copies of sale bills of gold and silver bullion correspond to bullion quantities as converted, which is also not in dispute. 13 mere change in nomenclature from jewellery to bullion in VDIS declaration visa-vis sale bills would not be relevant and is of no consequence. only exercise Assessing Officer had to undertake was whether gold, silver and diamond declared under VDIS and subsequently, claimed to have been sold after converting same into bullion are one and same. However, on premise that there is change in nomenclature Assessing Officer as well as Appellate Authorities have disbelieved claim of appellants. 11. Now turning our attention to finding of tribunal vide paragraph 7, which is to effect that Assessing Officer has held in assessment proceedings there was difference in quantities of gold, silver and diamond declared and sold is erroneous and perverse finding inasmuch as there is no such finding by Assessing Officer. On other hand, Assessing Officer has merely stated there was change in nomenclature and as such it could not be accepted 14 that items declared under VDIS was same as sold by appellants. In fact, tribunal fell in error by presuming that Assessing Officer had disputed quantitative details, which was not factual scenario, since Assessing Officer had verified details of quantities returned and sold, which has not been disputed and obviously for reason sale having been correlated on assaying of jewellery. In fact, it has been brought to notice of tribunal that jewellery declared was of lower purity and as such on conversion i.e., upon assaying purity had reduced proportionately, which has been erroneously ignored by tribunal. 12. In fact, tribunal erred in not considering fact that under similar circumstances in following cases rendered in respect of assessees who were similarly placed, had been accepted and appeals filed by respective assessees had been allowed. details of orders so passed by tribunal are as under: 15 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 ITO 30/06/16 Kallianpurkar 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 & 110/Bang/2016 ITA.111/Bang/2016 Sri G W Bafna DCIT 30/06/16 ITA.133/Bang/2016 Kanchanbai M Jain ITO 30/06/16 & 134/Bang/2016 ITA.139/Bang/2016 Ramakant R Sharma ITO 30/06/16 ITA.283/Bang/2016 Shri S Linganna DCIT 30/06/16 ITA.137/Bang/2016 Manjumala R Sharma ITO 04/07/16 ITA.82/Bang/2016 Sri Pukhraj D Jain, ITO 04/07/16 Hubli ITA.42/Bang/2016 Jayantilal P Jain ITO 31/08/16 13. In light of above stated facts we are of considered view that tribunal committed serious error in arriving at conclusion that items sold by respective appellants were different from jewellery declared under VDIS and as such substantial questions of law deserves to be answered in favour of assessees and against Revenue. 16 14. For reasons aforestated, we proceed to pass following: JUDGMENT (i) ITA Nos.100025/2018 c/w 100062/2018 100063/2018, 100024/2018 are allowed by answering substantial questions of law in favour of assessees and against Revenue. (ii) Order dated 22.12.2017 passed by ITAT C Bench, Bangalore, in ITA Nos.839/Bang/2016 and 840/Bang/2016 for assessment year 1998-99, is set aside and appeals filed by assessees before ITAT, Bengaluru, are allowed. (iii) No order as to costs. (SD/-) JUDGE (SD/-) JUDGE DR N.R. Gangavathi (HUF) v. Income-tax Officer Ward-3(2), Hubli Presently Jurisdictional AO, Ward 1(3), Hubli