2009 (11) TMI 346 - HC - Income Tax

Search and Seizure- During the course of seizure the Assessing Officer seized the cash and diamond. The diamonds were valued by the approved valuer. Based on the valuation report, the value of the diamonds was also brought to tax. The Commissioner (Appeals) disallowed the appeal filed by assessee but the Tribunal deleted the unaccounted cash of Rs. 5,61,967. Held that- (1) what was the value of diamonds seized during the course of search was a question of facts. thus, unless and until the Revenue was able to prove that the appreciation of evidence by the Tribunal was erroneous and illegal the court could not interfere with the findings. Thus the findings of the Tribunal that the diamonds should be valued at an average was a finding of fact. (2) the Tribunal had accepted the loose slips which were seized during the course of search. But the Assessing Officer had come to the conclusion that the accounts were manipulated subsequent to the search. The same had not been properly considered by both the authorities. Therefore, where the cash seized from the assessee amounting to Rs. 5,61,967 was taxable or not had to be re examined by the Assessing Officer by giving reasonable opportunity to the assessee.

Summary

Issues:
1. Legality and correctness of the order passed by the Income-tax Appellate Tribunal.
2. Deletion of unaccounted income, unaccounted jewelry, and valuation of diamonds.

Analysis:

Issue 1: Legality and correctness of the order passed by the Income-tax Appellate Tribunal
The case involves a dispute regarding the assessment year 1991-92. The respondent-assessee filed a return of income, which was revised later. The Assessing Officer concluded that certain cash, diamonds, and jewelry were unaccounted for and brought them to tax. The assessee appealed the assessment, which was allowed by the Commissioner of Income-tax (Appeals) and later by the Income-tax Appellate Tribunal. The Revenue challenged the Tribunal's decision. The High Court framed substantial questions of law related to the deletion of unaccounted income, unaccounted jewelry, and valuation of diamonds.

Issue 2: Deletion of unaccounted income, unaccounted jewelry, and valuation of diamonds
The court considered whether the cash seized during the search could be taxed in the hands of the assessee, the treatment of unaccounted jewelry, and the valuation method for diamonds. The Revenue argued that the Tribunal erred in deleting the unaccounted cash and undervaluing the diamonds. On the other hand, the respondent-assessee contended that the cash was legitimate business income and that the valuation of diamonds was a factual matter. The court held that the valuation of diamonds was a question of fact, not law, and upheld the Tribunal's decision on this aspect. However, regarding the unaccounted cash, the court found that the Tribunal did not consider the entire case properly and remanded the matter to the Assessing Officer for reexamination, emphasizing the need for a proper assessment based on all available evidence.

In conclusion, the High Court partially allowed the appeal without answering the substantial questions of law. The court remanded the matter to the Assessing Officer to determine whether the seized cash should be taxed in the hands of the assessee, highlighting the importance of a thorough examination of all relevant materials in making such a decision.