1998 (4) TMI 159 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the block assessment for the period 1986-87 to 1996-97.
2. Explanation and valuation of jewellery found during the search and seizure operation.
3. Ownership and explanation of diamond jewellery worth Rs. 10,79,522.
4. Adequacy of the investigation and procedural fairness by the Assessing Officer (AO).

Detailed Analysis:

1. Validity of the Block Assessment:
The appeal concerns the block assessment for the period from 1st April 1985 to 29th November 1995 under section 158BC of the IT Act, 1961. The assessee, an individual deriving income from various sources, was subjected to a search and seizure operation on 29th November 1995. The notice under section 158BC was served on 16th October 1996, and the assessee filed a return declaring nil income for the block period.

2. Explanation and Valuation of Jewellery Found:
During the search, jewellery worth Rs. 19,34,155 was found, out of which Rs. 11,57,691 was seized. The jewellery was explained by the assessee as belonging to various members of the S.C. Goyal HUF, supported by a valuation report dated 15th November 1992, valuing the jewellery at Rs. 8,54,633 as on 31st March 1992. The AO accepted this explanation but took the value as on 31st March 1992 instead of the date of the search, 29th November 1995, which was Rs. 15,12,379. The Tribunal found that the AO committed a mistake by not considering the updated valuation, leading to an unjustified computation of undisclosed income.

3. Ownership and Explanation of Diamond Jewellery Worth Rs. 10,79,522:
The assessee claimed that the diamond jewellery belonged to Goyal Gases Ltd., which had paid Rs. 10 lacs to Sajjan Kumar & Co. for the purchase of loose diamonds. The AO did not accept this explanation due to delayed entries of the bills and lack of confirmation from Sajjan Kumar & Co. The Tribunal noted that the assessee provided sufficient evidence, including bills and confirmation from Goyal Gases Ltd., but the AO did not investigate further or give the assessee sufficient time to provide additional evidence. The Tribunal held that the AO should have examined Sajjan Kumar & Co. before concluding that the jewellery was unexplained.

4. Adequacy of Investigation and Procedural Fairness by the AO:
The Tribunal criticized the AO for not providing the statements of the assessee and S.C. Goyal recorded during the search and for not investigating the claims adequately. The Tribunal emphasized that the burden of proof shifted to the Department once the assessee provided prima facie evidence. The Tribunal cited several cases, including Sarogi Credit Corporation vs. CIT and Hindustan Ferodo Ltd. vs. Collector of Central Excise, to support the principle that the AO should have conducted a thorough investigation before making any additions.

Conclusion:
The Tribunal concluded that the jewellery found at the residence and in the lockers was adequately explained and that the diamond jewellery belonged to Goyal Gases Ltd. The AO's failure to investigate further and the procedural lapses led to the Tribunal setting aside the order of the first appellate authority and deleting the addition of Rs. 10,79,522 as unexplained income. The appeal of the assessee was allowed.