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Issues Involved:
1. Addition on account of unexplained investment in gold ornaments. 2. Addition on account of difference in interest charged in money-lending business. Detailed Analysis: Issue 1: Addition on Account of Unexplained Investment in Gold Ornaments The appeals and cross objections pertain to the deletion of additions made by the Assessing Officer (AO) on account of unexplained investment in gold ornaments. A search and seizure action was conducted on the assessee's business and residential premises, during which gold ornaments were found and seized. The AO treated a significant portion of the gold ornaments as unexplained investment and made additions for various assessment years. The CIT(A) deleted these additions, leading to the department's appeal. The department argued that the gold ornaments shown against fictitious names actually belonged to the assessee and that affidavits filed by the assessee were not reliable evidence. The department emphasized that the books of account are primary evidence in income tax proceedings, and fictitious entries indicated that the gold ornaments were the assessee's undisclosed assets. The assessee countered by stating that the AO ignored evidence such as the assessee's statement during proceedings under sections 132(5) and 132(12) of the Act. The assessee had admitted that in about 91 cases, names of borrowers were not correctly recorded, but provided correct names and addresses later, which the AO did not find discrepancies in. The assessee also argued that the AO did not examine all the affidavits and that the gold ornaments were returned to their real owners after the release by the department. The Tribunal noted that the AO made additions based on presumptions without judicious application of mind. The Tribunal emphasized that in pawn-broking business, loans are advanced against the security of gold/silver ornaments, and the identity of borrowers may not always be accurately recorded. The Tribunal found that the assessee provided sufficient evidence to rebut the presumption that the gold ornaments belonged to him. The Tribunal upheld the CIT(A)'s decision to delete the additions, stating that the AO's approach was inconsistent and lacked proper inquiry into each transaction. Issue 2: Addition on Account of Difference in Interest Charged in Money-Lending Business The AO made additions on account of difference in interest charged in the money-lending business, based on the statement of the assessee's son during the search, which indicated that the interest rate varied from 16% to 24%. The AO applied an average interest rate of 20% and made additions accordingly. The CIT(A) reduced this rate to 18%. The assessee argued that there was no evidence of charging higher interest rates and that the addition amounted to double taxation as the assessee had already made a disclosure. The assessee maintained that the interest rate disclosed in the books was 16%, and no instance of charging higher interest was pointed out by the AO. The Tribunal held that in a search case, additions should be based on evidence collected during the search or admitted by the assessee. Since no documentary evidence indicated charging higher interest rates, the Tribunal found it unjustified to make additions based on estimation. The Tribunal deleted the additions made by the AO on account of unaccounted interest income, agreeing with the assessee's contention that the disclosed interest rate was 16%. Conclusion: The Tribunal dismissed the department's appeals and allowed the assessee's cross objections. The Tribunal upheld the CIT(A)'s decision to delete the additions made on account of unexplained investment in gold ornaments and difference in interest charged in the money-lending business, emphasizing the need for evidence-based assessments and proper judicial application of mind by the AO.
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