COMMISSIONER OF INCOME TAX Vs. SHATRUNJAY DIAMONDS

JUDGEMENT

(1.) THE revenue has filed this tax appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') against the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') dated 28 -9 -2000 stating therein that the following substantial question of law arises out of the order of the Tribunal : 'Whether on the facts and in the circumstances of the case, the Honble Income Tax Appellate Tribunal was justified in law in deleting the addition of Rs. 12,50,000 made by the assessing officer under section 40(A)(2)(b) of the Act, 1961 ?'

(2.) THE assessment relevant for the purpose herein is assessment year 1988 -89.

(3.) IN the assessment year in question, the assessee had imported rough diamonds from M/s. Paras Gems, New York, which is a substantially interested concern within the meaning of section 40A(2)(b) of the Income Tax Act. The assessing officer compared the price of the rough diamond imported by the assessee with the price of rough diamond imported by the assessee from other concerns and came to the conclusion that the assessee had paid excess price to the extent of Rs. 12,50,000 to M/s. Paras Gems. The assessing officer held that there is no correlation between the purchase price of rough diamonds with that of the sale price of cut and polished diamonds and in the absence of any further enquiry possible the assessing officer made disallowance to the extent of Rs. 12,50,000 under section 40A(2)(b) of the Act.