1988 (12) TMI 46 - HC - Income Tax

Summary

Issues Involved:
The judgment involves two main Issues:
1. Whether the Tribunal correctly assessed the ownership of jewellery found during a search and seizure operation at the business premises of the assessee.
2. Whether the expenditure incurred in purchasing loom-hours is considered revenue expenditure and can be disallowed in a reassessment under section 147(a) of the Income-tax Act, 1961.

First Issue - Ownership of Jewellery:
The original assessment for the year 1957-58 was reopened due to jewellery found during a search at the business premises. The Income-tax Officer estimated the value of the jewellery at Rs. 6 lakhs and added it to the income of the assessee. The Appellate Assistant Commissioner, however, deleted this addition after finding that no jewellery was found in the premises of the assessee-firm. The Tribunal upheld this decision, emphasizing that the jewellery was found in the rooms of partners and their wives, not in the business area. The Tribunal concluded that the Department failed to prove the jewellery belonged to the firm, especially since partners resided in the premises. The Court agreed with the Tribunal's reasoning, stating that the Department needed to prove ownership, and the presumption was that the owners were those found in possession unless rebutted by evidence.

Second Issue - Expenditure on Loom-Hours:
The Supreme Court's decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 settled the treatment of expenditure on loom-hours as revenue expenditure. In the original assessment, this expenditure was allowed as revenue expenditure. In the reassessment, an attempt was made to disallow it as capital expenditure. Following the Supreme Court's ruling, the Income-tax Officer was correct in allowing the expenditure as revenue in the original assessment. Therefore, the expenditure on loom-hours is considered revenue expenditure and cannot be disallowed in a reassessment under section 147(a) of the Income-tax Act, 1961.

Conclusion:
The first issue regarding the ownership of jewellery was decided in favor of the assessee, as the Tribunal's decision was upheld. The second issue concerning the expenditure on loom-hours was also resolved in favor of the assessee based on the Supreme Court's ruling. No costs were awarded in this matter.