Contemporaneous records and marriage gifts: block income reduction allowed conditionally, and jewellery was not unexplained investment

Retrospective block-assessment provisions permitted reduction of income not chargeable to tax only where the amount was traceable to books of account or other contemporaneous records maintained before search; the benefit was therefore conditional, and the reduction was available subject to verification of supporting entries. Jewellery received from close family members as marriage gifts was not liable to be treated as unexplained investment merely because purchase invoices were absent in the recipient's possession, particularly where the gift explanation was plausible and undisputed. The addition under section 69 was therefore unsustainable, while the block-assessment adjustment depended on proof of the recorded source.

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Issues: (i) Whether, in computing undisclosed income for the block period, the assessee was entitled to reduction of income not chargeable to tax where the income was reflected in books or other contemporaneous records, in light of the amended scheme of section 158BB. (ii) Whether jewellery received by the assessee from her father and father-in-law on the occasion of marriage could be assessed as unexplained investment under section 69.

Issue (i): Whether, in computing undisclosed income for the block period, the assessee was entitled to reduction of income not chargeable to tax where the income was reflected in books or other contemporaneous records, in light of the amended scheme of section 158BB.

Analysis: The retrospective amendment to section 158BB introduced a specific allowance for income not chargeable to tax, but only where the relevant income was supported by entries recorded in books of account or other documents maintained in the normal course before the search. The benefit was therefore not automatic. It depended on satisfaction of the condition that the amount sought to be reduced was traceable to such contemporaneous entries. If that factual foundation was established, the assessee could obtain reduction of the amount from undisclosed income. The amended provision was applicable notwithstanding that the block period covered earlier assessment years, because the provision itself operated from the date when Chapter XI-VB came into force and the amendment was retrospective to that regime.

Conclusion: The assessee was entitled to the benefit of reduction under section 158BB, subject to establishing before the Assessing Officer that the amount was supported by entries in the books or other contemporaneous records.

Issue (ii): Whether jewellery received by the assessee from her father and father-in-law on the occasion of marriage could be assessed as unexplained investment under section 69.

Analysis: The explanation offered was that the jewellery had been received as marriage gifts from close family members. That explanation was not disputed as to the source from which the jewellery came, and the surrounding circumstances of marriage made such gifts plausible in ordinary human conduct. The absence of purchase invoices in the hands of the bride did not, by itself, render the explanation unsatisfactory, particularly when the gifts themselves were not denied by the donors. In these circumstances, invoking section 69 to treat the jewellery as unexplained investment was not justified.

Conclusion: The addition under section 69 in respect of the jewellery was not sustainable and the issue was answered in favour of the assessee.

Final Conclusion: The revenue's challenge failed on the substantive issues, with relief granted to the assessee on both the block-assessment computation and the jewellery addition, while the first issue remained subject to verification of the supporting records by the Assessing Officer.

Ratio Decidendi: A retrospective block-assessment provision allowing exclusion of income not chargeable to tax applies only when the amount is traceable to contemporaneous books or records, and jewellery received as a plausible marriage gift from close relatives cannot be treated as unexplained investment merely for want of purchase invoices in the recipient's possession.

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