1998 (3) TMI 180 - AT - Income Tax

Summary

Issues:
1. Valuation of unaccounted jewellery seized during search operation.
2. Treatment of surplus funds from previous assessment years in computing undisclosed income.

Analysis:

Issue 1: Valuation of unaccounted jewellery seized during search operation
The appeal was filed by the firm against the order passed by the Asst. CIT for the block period from 1st April, 1985 to 22nd Dec, 1995. The Department conducted a search operation at the jewellery shop premises and seized 2,073.990 gms of unaccounted gold ornaments. The AO determined the undisclosed income at Rs. 16,82,370, including the value of the unaccounted jewellery at Rs. 9,72,700. The firm contended that only the actual investment in the jewellery should be considered as undisclosed income, not the entire value. The Departmental Representative argued that the value of unaccounted jewellery should be deemed as income as per section 69A of the IT Act. The ITAT held that the value of 1,147 gms of jewellery as on 16th Nov., 1986 should be valued at the market rate at that time, while the remaining quantity should be valued as on 22nd Dec, 1995. The ITAT directed the AO to revise the addition based on this valuation method.

Issue 2: Treatment of surplus funds from previous assessment years
The firm claimed that surplus funds from the 1989-90 and 1994-95 assessment years should be allowed as credit for subsequent years. The AO rejected the claim regarding the funds withdrawn by a partner in 1988, stating it might have been used for other purposes. The ITAT found that there was no evidence to show the partner utilized the withdrawn amount for other purposes, directing the AO to give credit for the surplus cash in the subsequent years. Regarding the surplus fund claim for 1994-95, the ITAT upheld the AO's decision as the partner had only withdrawn a smaller amount, not the claimed sum. Consequently, the ITAT partly allowed the appeal, instructing the AO to recalculate the undisclosed income for the block period.

This judgment highlights the importance of proper valuation methods for unaccounted assets and the necessity of providing evidence to support claims of surplus funds in income tax assessments.