The burden of proof lies with the assessee to tender credible and bonafide explanations for undisclosed income, and the principles of natural justice should be upheld in the context of cross-examination.

ANITA SUMANTH, J.

1. This appeal is filed at the instance of the Revenue challenging an order of the Income tax Appellate tribunal (in short “Tribunal”) dated 3.1.2005 relating to the block period 1.4.1995 to 13.09.2001.

2. The substantial questions of law raised and admitted for consideration of this court are as follows;

(i) Whether on facts and in the circumstances of the case, the Tribunal was right in deleting additions made in the block assessment on the ground that no material was found at the time of search, when the assessee himself had admitted to the undisclosed income?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in deleting additions made in the block assessment on the ground that no opportunity to cross-examine was granted, when no such opportunity was ever sought at any time?

(iii) Whether on the facts and circumstances of the case the Tribunal was right in ignoring the statements recorded from the assessee, his wife, and mother admitting that the two women had no sources of income and the amounts were undisclosed income of the assessee?”

3. The assessee is in the business of manufacturing, testing and carrying out job work in relation to gold and jewellery. Search and seizure action in terms of Section 132 of the Income Tax Act (in short “Act”) was conducted on 13.9.2001. Incriminating documents, books of accounts, jewellery and other assets were found and seized. Statements were recorded from various persons in terms of Section 132(4) of the Act. Pursuant to notice under section 158 BC of the Act, an assessment for the block period 1.4.1995 to 13.9.2001 was framed in terms of Chapter XIV B of the Act. Various additions and disallowances were effected that were carried in appeal before the first appellate authority, who, after detailed consideration of the same, dismissed the appeal of the assessee, vide order dated 25.6.2004. The matter was carried in appeal before the Income tax Appellate Tribunal at the instance of the assessee and was partly allowed by the Tribunal giving way to the present appeal at the instance of the Commissioner of Income Tax before us.

4. We have heard Mr.T.R. Senthilkumar, learned Standing Counsel for the CIT and Mr.S.Sridhar, learned counsel for the assessee/respondent. Adverting to substantial question (i), a tabulation of the additions have been circulated, being, cash introduced in capital account, Capital and credits in the accounts of M/s.RRR Testing, Net profit, various credits and consequential interest payments and on-money paid on purchase of land. The provisions of s.158 BB require that undisclosed income is to be computed solely on the basis of evidence found as a result of search or requisition of books of accounts or other documents and such other materials or information as are available with the assessing officer and relatable to such evidence. On a query from the Bench, the learned Standing counsel fairly states that the additions are based only on the returns of income filed by the wife as well as various other entities that were available with the department and are not relatable to seized material. The additions thus fail and have been rightly deleted by the Tribunal.

5. The addition of an amount of Rs.7,68,420/- arises from a difference in valuation viv-a-vis the assessee and the departmental valuer and is, again, not relatable to search material. In view of the aforesaid, substantial questions No.(i) and (iii) extracted above are liable to be answered against the Revenue and in favour of the assessee.

6. In the course of search, the department found and seized gold and diamonds from the business premises of the assessee at Coimbatore. We are concerned in this appeal to the addition relating to 5102.300 gms of gold and 336.189 carats of diamonds. We first deal with the aspect of seized gold. At the time of search, when questioned, the assessee offered the gold as unaccounted investment. Thereafter, in the course of assess