2013 (7) TMI 364 - HC - Income Tax

Unexplained investment - Exhibition of diamond jewellery - VDIS produced - Both appellate authorities deleted addition on account of unexplained investment - Held that - Partners and family members had given the jewellery to the assessee firm only for exhibition - Assessee firm, soon after receiving the jewellery had issued the vouchers - Vouchers were seized during the course of search, so the genuineness of the vouchers can not be questioned - Both the appellate authorities have observed that diamond jewellery studded with gold is the same jewellery which was received by the assessee from partners and family members and the said jewellery was declared by them under VDIS or in wealth tax return before the date of survey/search - Tribunal is final fact finding authority - No reason to interfere with the impugned orders - Decided against Revenue. Surcharge u/s 113 - Tribunal deleted surcharge by holding that the insertion of proviso to Section 113 was not clarificatory in nature - Held that - Surcharge under Section 113 of the Act is mandatory and is applicable with retrospective effect - Following decisions of CIT Vs. Rajveer Bhatia 2009 (2) TMI 12 - SUPREME COURT and CIT Vs. Suresh Chandra Gupta 2008 (1) TMI 396 - SUPREME Court - Decided in favour of Revenue.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was correct in deleting the addition made on account of unexplained investment in diamond jewellery.
2. Whether the Income Tax Appellate Tribunal was justified in deleting the surcharge levied under section 113 of the Income Tax Act.

Analysis:
Issue 1:
The case involved an appeal filed by the department under Section 260-A of the Income Tax Act against the Tribunal's order regarding the addition made on account of unexplained investment in diamond jewellery during a search and seizure operation. The department contended that the diamonds found were not reflected in the books of accounts, and the value of the diamonds exceeded what was declared under the Voluntary Disclosure of Income Scheme, 1997. The department argued that the explanation given by the assessee was not convincing. However, the appellate authorities, including the Tribunal, held that the jewellery seized during the search was the same jewellery declared by the partners and family members under VDIS. The Tribunal concluded that the addition made by the Assessing Officer was unwarranted as all transactions were recorded in the regular course of business, and the undisclosed income computation was incorrect. The Tribunal's decision was based on the facts and evidence presented, leading to the deletion of the addition.

Issue 2:
The second substantial question of law focused on the deletion of the surcharge levied under section 113 of the Income Tax Act by the Tribunal. The department argued that the surcharge was mandatory and applicable with retrospective effect, citing relevant Supreme Court judgments. In this regard, the High Court set aside the Tribunal's decision and restored the Assessing Officer's order, thereby ruling in favor of the revenue and against the assessee. The High Court's decision was based on the mandatory nature of the surcharge under Section 113 of the Act, as clarified by the Supreme Court's observations in previous cases.

In conclusion, the High Court partially allowed the appeal, ruling in favor of the assessee on the first substantial question of law regarding the addition made on diamond jewellery and in favor of the revenue on the second substantial question of law concerning the surcharge under section 113 of the Income Tax Act. The judgment highlighted the importance of factual findings, adherence to legal provisions, and the significance of evidence in tax-related matters.