Court directs reassessment for capital gains, not undisclosed income.

The Court allowed the appeals, setting aside the impugned orders and directing the matter to go back to the Assessing Officer for tax assessment on capital gains. The Court found that the assessees should be taxed only for capital gains, similar to other family members in comparable situations, rather than as undisclosed income.

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Issues involved:
The issues involved in this case are related to the treatment of undisclosed income, family arrangement, capital gains tax, and the validity of declarations made under the Kar Vivad Samadhan Scheme (KVSS).

Summary:

1. Appeal No. 68/2002 and Appeal No.41/2001:
The appeals arose from a common judgment of the learned Tribunal dated 7.12.2000. Appeal No.68/2002 was admitted by the Court on 21.3.2007, raising substantial questions of law regarding the family arrangement and treatment of jewellery found during a search.

2. Background and Proceedings:
After various orders and hearings, both appeals were connected and heard together. The appeals involved common substantial questions of law and were decided by a common order.

3. Facts:
A search in December 1987 led to the finding and seizure of valuables in the possession of family members. A family arrangement was subsequently entered into, distributing the valuables among family members. The assessee sold certain articles, declaring long-term capital gains from the sale.

4. Tribunal's Decision:
The Assessing Officer treated the sale proceeds as undisclosed income, a decision upheld by the C.I.T. (Appeals). The Tribunal considered the source of jewellery and its acquisition, noting declarations made by family members under the KVSS. The Tribunal upheld the addition of the entire sale consideration as undisclosed income.

5. Arguments:
The assessees argued that the family arrangement allocated properties to various family members, and other family members had been taxed only for capital gains on jewellery sold. They contended that the impugned order should be set aside.

6. Court's Analysis:
The Court considered the declarations made by family members and the relevance of the family arrangement. It noted discrepancies in the acquisition of jewellery and concluded that the assessees should be taxed only for capital gains, not as undisclosed income.

7. Conclusion:
The Court found that the assessees should be taxed only for capital gains, similar to other family members in similar situations. Both questions of law were answered in favor of the assessees, the appeals were allowed, and the impugned orders were set aside. The matter was to go back to the Assessing Officer for tax assessment on capital gains.

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