Appeal partly allowed, remanded for capital gains re-computation based on valuation report.

The appeal was partly allowed for statistical purposes, remanding the matter to the AO for the re-computation of capital gains based on the valuation report of raw and uncut diamonds as on 1-4-1981. The AO was directed to provide adequate opportunity for the assessee during this process.

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Issues Involved:
1. Opportunity of hearing and appreciation of specific contentions.
2. Computation of capital gains.
3. Acceptance of valuation report and additional evidence.
4. Determination of fair market value (FMV) of assets as on 1-4-1981.
5. Application of cost inflation index in reverse direction.
6. Re-computation of capital gains based on valuation report.

Issue-wise Detailed Analysis:

1. Opportunity of Hearing and Appreciation of Specific Contentions:
- Ground No. 1: The assessee argued that the CIT(A) erred by not providing a proper opportunity for a hearing and not appreciating specific contentions, resulting in a perverse and wrong finding. However, this ground was not pressed during the hearing and was subsequently rejected.

2. Computation of Capital Gains:
- Ground Nos. 2 to 4: The assessee contended that the CIT(A) and the Assessing Officer (AO) erred in computing the profit under the head 'capital gains.' The assessee argued that the computation was incorrect and contrary to the law, and the authorities should have accepted the capital loss or gain as returned by the appellant.
- Facts: The assessee declared long-term capital gain on the sale of diamonds, showing a net income from salary and interest. The AO found discrepancies in the valuation of diamonds and computed the capital gain at Rs. 16,86,204 by considering the fair market value of the raw diamonds as on 1-4-1981.

3. Acceptance of Valuation Report and Additional Evidence:
- The assessee submitted a valuation report of raw and uncut diamonds as on 1-4-1981 before the CIT(A). However, the CIT(A) did not accept this additional evidence, citing non-compliance with Rule 46A of the Income-tax Rules, 1962.

4. Determination of Fair Market Value (FMV) of Assets as on 1-4-1981:
- The core issue was whether the FMV of finished diamonds or raw diamonds as on 1-4-1981 should be considered. The assessee argued for the FMV of finished diamonds, while the revenue contended that the FMV of raw diamonds should be taken.
- Legal Provisions: Section 55(2)(b)(i) allows the assessee to opt for the FMV of the asset as on 1-4-1981 if acquired before that date. The Tribunal concluded that the FMV of the raw and uncut diamond as on 1-4-1981 should be considered, not the FMV of the finished diamond.

5. Application of Cost Inflation Index in Reverse Direction:
- The AO applied the cost inflation index in reverse to determine the FMV of the raw diamonds as on 1-4-1981. However, this method was disapproved by the Hon'ble Jurisdictional High Court in the case of Jogat Mohan Kapur, which held that applying the cost inflation index in reverse is arbitrary, unreasonable, and violates Article 14 of the Constitution of India.

6. Re-computation of Capital Gains Based on Valuation Report:
- The Tribunal agreed with the revenue's suggestion to obtain a valuer's report for the raw and uncut diamonds as on 1-4-1981. The valuation report submitted by the assessee before the CIT(A) should be considered. The Tribunal directed the AO to re-compute the capital gains after considering the valuation report, allowing adequate opportunity for the assessee to present their case.

Other Grounds:
- Ground Nos. 5, 6, and 7: These grounds were not pressed during the hearing and were subsequently rejected.

Conclusion:
- The appeal was partly allowed for statistical purposes, with the matter remanded to the AO for re-computation of capital gains based on the valuation report of raw and uncut diamonds as on 1-4-1981. The AO was directed to provide adequate opportunity to the assessee during this process.

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