Conditional tax offer cannot justify addition when jewellery source is proved and no unexplained income remains.

A conditional or without prejudice offer cannot sustain an income-tax addition once the source of the jewellery is satisfactorily explained on merits. The Delhi High Court held that an assessee's earlier offer to tax part of the jewellery value, made only to buy peace and avoid litigation, did not amount to an admission creating tax liability. Estoppel does not apply to fasten tax on an amount otherwise not assessable, and section 23 of the Indian Evidence Act supports exclusion of such conditional admissions. The addition for unexplained investment in jewellery was therefore deleted.

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Issues: Whether the addition of Rs. 4,59,200 as unexplained investment in jewellery could be sustained when the source of the entire jewellery was found explained, and whether the assessee's conditional offer to tax a part of the amount could justify the addition.

Analysis: The disputed jewellery arose from a search under Section 132 of the Income-tax Act, 1961. The appellate authority had accepted the assessee's explanation that the source of acquisition of the entire jewellery was satisfactorily proved, but still retained a partial addition only because the assessee had earlier offered 20% of the value to buy peace and avoid litigation. The Court held that the offer was clearly conditional and made without prejudice; it was not an admission capable of fastening tax liability once the explanation for the jewellery had been accepted on merits. The principle of estoppel does not operate in income-tax matters, and a mistaken or conditional disclosure cannot confer jurisdiction to tax an amount otherwise not assessable. Section 23 of the Indian Evidence Act, 1872 also supported exclusion of such conditional admissions.

Conclusion: The addition of Rs. 4,59,200 could not be sustained and was deleted. The issue was decided in favour of the assessee.

Final Conclusion: Once the source of the disputed jewellery stood satisfactorily explained, no part of it could be treated as unexplained merely because the assessee had made a conditional offer in the return.

Ratio Decidendi: A conditional or without prejudice offer cannot, by itself, justify a tax addition where the underlying asset has been satisfactorily explained and no unexplained income remains established on merits.

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