CIT vs. Uttamchand Jain (Bombay High Court)

No assessment merely on retracted confession

The assessee had declared diamond jewelry under the Voluntary Disclosure of Income Scheme, 1997 (‘VDIS’). The said declaration was accepted by the department and a certificate was issued to the assessee under VDIS. In A.Y. 1998-1999, the assessee claimed to have sold the said jewelry declared under VDIS to M/s.Dhananjay Diamonds and thereby earned long term capital gains. The Income Tax authorities conducted a survey at M/s. Dhananjay Diamonds and recorded the statement of its proprietor, Mr. Trivedi, u/s 133A on 31.3.2000. Trivedi confessed that he was not doing actual business of trading in diamonds and that the transactions reflected in his books of accounts were merely accommodation entries given to various VDIS declarants. The said statement was retracted vide letter dated 4-4-2000 (received by A.O. on 17-4-2000). In view of the confession, the AO assessed the sale proceeds of jewelry as undisclosed income. The Tribunal, by a majority, deleted the addition. On appeal to the High Court, HELD, upholding the Tribunal’s order:

(i) The certificate issued under VDIS to the effect that the assessee had diamond jewellery continued to be valid and subsisting and no proceedings had been initiated to cancel the same. Accordingly, it was not open to the revenue to contend that there was no jewellery which could be sold by the assessee.

(ii) In view of the retraction of the statement and the decision of the Supreme Court in Vinod Solanki V/s. UOI 2008 (16) Scale 31, the retracted confession can be relied upon only if there is independent and cogent evidence to corroborate the confession.

(iii) The Tribunal’s finding that the assessee has successfully shown the existence of diamond jewellery prior to the sale, the person to whom it is sold and also the consideration received could not be faulted.