A. KALYANASUNDHARAM, A.M.: ORDER These are cross-appeals by assessee and Department and both of them are aggrieved by CIT (A) order by which entire assessment made by ITO has been set aside. facts of case are as under : 2 . Department carried out search and seizure operations on all transport operators at Jodhpur in or around April 1979. One such transport operator was Nakoda Transporters. On examination of various transport bills, Department came across certain bills relating to transportation of titanium dioxide and caustic soda. recipients of goods relating to these bills were only one party Anubhav Traders Ahmedabad GR Description Amount Freight Weight Date Consignor Consignee No. of goods Rs Rs Qtl 1 2 3 4 5 6 7 8 10th Amarchand Anubhav Traders, 1597 March, Caustic Agarwal &,Co. 11,840 142 10 Ahmedabad 1979 Jodhpur 28th Amarchand Anubhav Traders, 1681 March, Titanium Agarwal & Co., 24,544 242 20 Ahmedabad 1979 Jodhpur 384 29th Sunder & 419 Sept., Titanium Anubhav traders Ahmedabad 18,408 212 15 Co Jodhpur 1978 29th Sunder & Anubhav 420 Sept., Titanium 18,408 212 15 Co Jodhpur Traders,Ahmedabad 1978 29th Sunder & Anubhav Traders 421 Sept., Titanium 18,408 212 15 Co Jodhpur Ahmedabad, 1978 26th snder & Co 513 Titanium AnubhavTraders,Ahmedabad 12,272 142 10 Oct., 1978 Jodhpur 9th Sunder & Anubhav 544 Titanium 36,816 422 30 Nov 1978 Co Jodhpur Traders,Ahmedabad 2nd Sunder & Anubhav 754 Titanium 36,816 422 30 Jan 1979 Co Jodhpur Traders,Ahmedabad 1,622 Industrial Chemicals, Jodhpur GR Description Amount Freight Weight Date Consignor Consignee No. of goods Rs Rs Qtl 1 2 3 4 5 6 7 8 Anubhav Indl 26th Traders,119,Spectrum 512 Titanium Chemicals 18,408 212 15 Oct., 1978 Comm CenterRelief Jodhpur Road,Ahmedabad Anubhav Indl 9th Traders,119,Spectrum 543 Titanium Chemicals 36,816 422 30 Nov ,1978 Comm CenterRelief Jodhpur Road,Ahmedabad Anubhav Indl 5th Traders,119,Spectrum 860 Caustic Chemicals 98, 17 6 1,237.40 40 Feb ,1979 Comm CenterRelief Jodhpur Road,Ahmedabad Anubhav Indl 7th Traders,119,Spectrum 864 Titanium Chemicals 73,632 842 60 Feb ,1979 Comm CenterRelief Jodhpur Jodhpur Road,Ahmedabad Anubhav 11th Indl Traders,119,Spectrum 1600 March Titanium Chemicals 1,10,248 1,091 90 Comm CenterRelief ,1979 Jodhpur Road,Ahmedabad 3,804.40 recipient was contacted through Department at Ahmedabad who vide his letter to ADI dt. 8th May, 1979 had accepted of having received titanium dioxide of four consignments only relating to Bill Nos. 419,420, 421 and 543. They further mentioned in letter that three parties had dealing with them only 1978-79 and they did not deal with them either in 1977-78 or 1979-80. They also mentioned in said letter of having sold caustic soda to Gulabdas Jagannath & Associates in year. In letter party mentioned that Ram Lal Garg was personally known to them and that Ram Lal Garg used to represent Sunder & Co. In letter it was further mentioned that representative of Industrial Chemicals accompanied Ram Lal Garg for booking orders. orders for Amarchand Agarwal & Co. were booked by Ram Lal Garg (Letter dt. 8th May, 1979 at pages 93-95). 2.1 On 9th April, 1979 and on 10th May, 1979, Department had taken statement of Madan Raj Mehta, partner of Nakoda Transporters which are at pages 17 to 21. In this statement of 9th April, 1979, Madan Raj Mehta had stated that he had transported titanium dioxide to Ahmedabad for only three parties, viz., Sunder & Co., Industrial Chemicals and Amarchand Agarwal & Co. In this statement Madan Raj Mehta had stated that he does not know sender or person who had brought but knew recipient who was Anubhav Trader as all charges were to be paid by them. In second statement Madan Raj Mehta stated that Ratan Lal was proprietor of Anubhav Traders to whom goods were sent. He also stated that weight of each consignment duly packed used to be 24 kg. third statement was taken from Madan Raj Mehta on 29th Dec., 1980 wherein details of bills of goods as reproduced above was given. In this statement Madan Raj Mehta again reiterated that he had known only Anubhav Traders and not three parties. He further state that goods duly packed were accompanied by proper bills which is usual practice, as such, no examination was ever done and further bills were always made to pay, i.e., to be paid by receiver. Regarding genuineness of parties sending goods, it was stated that transporter acts as postman who knows to whom letter must be delivered. To query as to why three firms could not be treated as belonging to him and profit that arose from transaction taxed in his hands, reply given was that he does not carry out any trade relating to titanium dioxide or caustic soda but only transports goods belonging to others. In case evidence is gathered or available which leads to conclude that business or transaction was done by them, then necessary action may be taken including prosecution. Another query was that certain goods which are said to have been delivered to Anubhav Trader, according to them they have not received same, therefore, why not selling price of Bill Nos. 1681, 754, 513, 860 and 1600 be added to your income. reply given was that goods were delivered to Anubhav Traders and payment was duly received from them and has been so entered in books. photocopy of receipts issued was also taken by Department. This statement was later followed by affidavit dt. 1st Jan., 1981. 2.2 From 23rd Aug., 1979 to 29th Aug., 1979 Department conducted survey of premises of Gulabdas Jagannath & Associates, Gulabdas Jagannath and also premises of their partners. assessee is partner in his individual capacity in Gulabdas Jagannath & Associates. Gulabdas Jagannath deals with soap, soda urea, BHC powder and other chemicals and Gulabdas Jagannath & Associates deals in titanium dioxide. In raid, Department seized following documents : (a) visiting card bearing name Industrial Chemicals, Nakoda Bhawan Chopasini Road, Jodhpur, telex and telephone of assessee-firm; (b) Correspondence between Industrial Chemicals, Guj., Chem. Distilleries India Ltd., Billimora, Gujarat and Chemical & Ancillaries Services for period February and March, 1977 (Pages 2 to 5 of paper book). assessee was asked to explain above but no satisfactory explanation was given. Later assessee vide letter dt. 12th Sept., 1979 in s. 132(5) of IT Act, 1961 ('the Act') proceedings (pages 23-26) submitted particulars of all related concerns of assessee. In this letter assessee had particulars of all related concerns of assessee. In this letter assessee had submitted that products of Cellulose Product of Indian Ltd. yielded goods margin and there arose desire to get agency and agency under name of Industrial Chemicals was sought. correspondence dt. February and March 1977 that were seized on 23rd Aug., 1979 were in that connection only.The agency was not granted and, therefore, Industrial Chemicals was shelved. It was further stated that no business was ever done under banner Industrial Chemicals. 2.3 Department carried on investigation further. Praveen Kumar employee of Nakoda Transport Co. (who became partner of that firm later) wrote letter to ITO, Jodhpur dt. 30th Jan., 1981, followed by affidavit dt. 18th Feb., 1982 and examination and cross-examination by assessee on 18th Feb., 1982. Praveen Kumar stated in his letter dt. 30th Jan., 1981 that goods of three firms were given by Shyam Sunder Dhoot of Gulabdas Jagannath & Associates to be sent to Ahmedabad. Even bills were given personally by Shyam Sunder Dhoot. He further stated goods were delivered to Anubhav Traders of Ahmedabad. This statement was confirmed by affidavit dt. 18th Feb., 1981. Praveen Kumar was cross-examined by assessee's counsel Mr. Mertia on 18th Feb., 1981. counsel put specific questions which reads as : Question : Who prompted you to give affidavit ? Answer : On receipt of notice from Income-tax Department in connection with my firm's case, I had given affidavit. Question 19 : Did notice required you to give any affidavit ? Answer : notice required me to give information regarding transportation of titanium dioxide and caustic soda which I had given as was existing in my firm's books and to best of my knowledge and belief and out of my own free will. Question 20 & 22 : Can you show notice after obtaining it from your counsel ? Answer : notice is not readily available. Question 24 : You had mentioned in your affidavit that for transportation of these goods, Shyam Sunder Dhoot had contacted you, kindly tell me how did he contact you ? 27 : Kindly mention names of other partners of your firm who had given statements in this case ? Answer : Mr. Madan Raj had given statement. Question 28 : Did he also stated that Shyam Sunder Dhoot sent goods ? Answer : I have no idea. Question 29 : Did you prepare various bills as has been mentioned in your affidavit ? Answer : I did not prepare any of bills. Question 37 & 38 : Kindly tell as to when Shyam Sunder Dhoot contacted you in connection with consignment transported ? Answer : He came to our Jodhpur officer personally about 3-4 days prior to first consignment and also spoke over phone about two hours prior to dispatch of goods. Question 39 : Did Shyam Sunder Dhoot himself brought goods ? Answer : No. goods were sent through messenger. Question 40 & 41 : Kindly give name of office of Shyam Sunder Dhoot ? Answer : only office name I had known was Gulabdas Jagannath & Associates. Examination by Manik Chand, ITO. Question 47 : Did you discuss about transportation request made by Shyam Sunder Dhoot with Madan Raj Mehta, your partner ? Answer : No. I did not discuss this matter with Madan Raj Mehta. Question 48 : Have you mentioned now to Madan Raj Mehta ? Answer : Yes, I have now mentioned it to him. Re-examination by P. R. Mehta, Counsel for Praveen Kumar. Question 51 : What is connection between three firms and Gulabdas Jagannath & Associates with Shyam Sunder Dhoot ? Answer : There is connection between three firms and Shyam Sunder Dhoot as it was he who had contacted me for transportation of goods of these three firms, both personally as well as over phone. Question 52 : Did Shyam Sunder Dhoot, while taking to you mention names of three firms or did he send bills only later ? Answer : While talking to me he did not mention names of three firms. He only mentioned that lot of titanium dioxide and caustic soda have to be transported and asked for charges which was given to him and I also gave him addresses of our office at Narul and Ahmedabad. bills were sent by him through messenger along with goods. In our business we had come across instances where there are number of relate concerns of one and same person. Shyam Sunder Dhoot never mentioned names of three firms but since very same goods which ShyamSunder Dhoot wanted to be transported had been received I concluded that three firms belonged to him only. Cross-examination by Mr. Mertia, counsel for assessee. Question 53 : Did Shyam Sunder Dhoot had talk with you in connection with all bills ? Answer : No. He spoke to me for 4-5 bills only and as for rest he spoke to Sharma my employee. At start for transportation, it was Shyam Sunder Dhoot who talked to me. Question 54 : Kindly tell nature of during and responsibilities of Sharma. Answer : Mr. Sharma was our administrative officer and at present he is no more in our service and it is over one year since he had left us. When he was leaving us, he mentioned that he was going to Bombay but did not leave any address. Question 55 : When Shyam Sunder Dhoot talked to you, was Mr. Sharma present at that time ? Answer : Yes, he was present. 2.4 order under s. 132(5) was passed by which amount of Rs. 5 lakhs aggregate of bills was treated as income of assessee. Assessee had moved application under s. 132 (1) (ii) to CIT which is still pending. 2.5 During proceedings ITO keeping various facts gathered as above in mind, examined Ratan Lal of Anubhav Traders on 6th March, 1982. On this day he had asked Shyam Sunder Dhoot to be present while adjourning case on 27th Feb., 1982 without mentioning that he had called Mr. Ratan Lal for examination. On 6th March, 1982 Shyam Sunder Dhoot called Mr. Ratan Lal for examination. On 6th March, 1982 Shyam Sunder Dhoot did not attend as he was away to Gujarat Alkalies & Chemicals Ltd. Mr. Ratan Lal's statement was recorded in presence of Mr. Mertia, assessee's counsel. Mr. Mertia was asked to cross-examine him who refused to do so on plea that his client away and that it is he who would like to cross-examine Ratan Lal. statement of Mr. Ratan Lal is at page 65 of paper book. Question 1 : Did you on behalf of Anubhav Traders purchased titanium dioxide and caustic soda from Sunder & Co., Amarchand Agarwal & Co. and Industrial Chemicals ? Answer : Yes, there were purchase from all three firms. Question 3 : Who had contacted you on behalf of three firms ? Answer : person who contacted me mentioned his name as Ram Lal Garg. Question 4 : Where does he reside ? Answer : I know that he resides at Jodhpur but I don't know his address. Question 5 : Can you recognise Ram Lal Garg ? Answer : Yes, I can. I had 5-6 dealings with him. Question 6 : Is photograph that is shown to you is that of Ram Lal Garg ? Answer : Yes, photograph is that of Ram Lal Garg. Question 7 : Kindly examine photograph carefully and then put your signature on back of it ? Answer : I have examined it and I have singed same. counsel for assessee was alleged to be present at time of recording this statement but refused to cross-examine Ratan Lal on plea that his client would do same. 2 . 6 ITO was thus convinced that three firms Sunder & Co., Amarchand Agarwal & Co. and Industrial Chemicals belonged to assessee for following observations : (a) Seizure of visiting card of Industrial Chemicals and Correspondence from Industrial Chemicals; (b) Assessee dealing in similar goods; (c) Assessee stating on 23rd Aug., 1979 that he did not know any thing about seized document and stating that he did not know any concern by name Industrial Chemicals; (d) Assessee's letter of 12th Sept., 1979 about correspondence as was done in 1977 only and that no business was ever done is only afterthought and is quite contrary to what he had stated on 23rd Aug., 1979; (e) Statement of Praveen Kumar which was found to be iron clad against assessee; (f) Ratan Lal's statement combined with his recognising Ram Lal Garg from photograph which was photograph of Shri Shyam Sunder Dhoot; and (g) Assessee's refusal to cross-examine Ratan Lal on 6th March, 1982 and assessee's action of absenting from appearance on 6th March, 1982 was out of fear of being recognised as Ram Lal Garg. ITO, thus, very much convinced that it was assessee who represented himself as Ram Lal Garg had carried on transaction which were not accounted for, proceeded ahead to make assessment on him. He considered serial numbers of bills and then observed as under : "The details mentioned above suggests that bills were issued in regular course of business and sequence in which bills have been issued clearly shows that all bills from serial No. 1 to 3314 in name of Sunder & Co., from serial No. 1 to 1839 in name of Amarchand Agarwal & Co., and serial No. 1 to 2525 in name of Industrial Chemicals were issued and goods sent to various places. Department has been able to locate 13 bills/bilty only but sequence in which bills have been issued suggests that each and every bill was issued. 13 despatches located by Department were sent to Anubhav Traders, Ahmedabad & despatches against rest of bills were sent to other places which are known only to assessees. Therefore, for purpose of computation of concealed income inclusion of rest of bills is justified. In this connection copies of some of bills but covering all three firms were given to assessee asking him why not rest of bills should also be taken into consideration for purpose of computation of income. learned authorised representative through one of his messengers sent letter substance of which is that only material on record could be relied upon, if at all addition is made on account of business carried on by fictitious concerns which assessee which assessee disowns, argument of assessee is not convincing in light of above discussion and also for reason taking that authorised representative has not given any argument for not taking in to consideration rest of bills relating to all three fictitious concerns. assessee has not co-operated with Income-tax Department, and also as assessee has failed to disclose fully and truly all material facts of his income, I have no alternative but to estimate income from material available on record with Department. From above details I find that bills against bilty Nos. 860, 864 and From above details I find that bills against bilty Nos. 860, 864 and 1600 are on higher side. Therefore, I am leaving excess over average of these bills for separate consideration. average of rest of 10 bills comes out to Rs. 23,223. For sake of more reasonable estimate, I further restrict this average to Rs. 15,000 per bill which is about 2/3rd of above amount. Total number of bills which appears to have been issued are as under : Rs. (i) Amarchand Agarwal & Co. 1,839 (ii) Sunder & Co. 3,314 (iii) Industrial Chemicals 2,525 Total 7,678 But keeping in view various contingencies of business, which might have occurred, I take total number of effective bills at 5,000. Thus, sales through 5,000 bills on estimate average of Rs. 15,000 per bill comes out to Rs. 7,50,00,000 and to this figure I add again on estimate basis Rs. 5 lakhs on account of bills which have been issued for higher amount. Looking to facts and circumstances of case, it apply gross profit rate of 4 per cent which gives total gross profit of Rs. 30,20,000. Out of this, deduction of extent of 25 per cent is allowed to assessee for items of P&L A/c. Thus, net profit earned through these concerns is taken at Rs. 22,65,000. It may also be mentioned that he source of investment in purchase and sale of goods is also not known and, therefore, on estimate basis I take initial investment for carrying on business through above concerns at Rs. 1,50,000. Therefore, total concealed income on account of business carried on in name of fictitious concerns comes to Rs. 22,65,000 plus Rs. 1,50,000 (under s. 69) = Rs. 24,15,000. assessee has not produced any proper books of account and sale and purchases of assessee's goods sent on behalf of 3 concerns has not been recorded in books of account and, therefore, provisions of s. 3 in respect of sale through bogus concerns are applicable in this case. Therefore, bills issued by these three concerns up to 31st March, 1979 have been taken into consideration in asst. yr. 1979-80 as transaction made in financial year 1978-79 are to be considered in asst. yr. 1979-80 itself under aforesaid provisions of IT Act, 1961. approval of learned IAC (Assessment) to this addition is contained in following words : ' (vi) argument of assessee is that sales cannot be estimated on assumptions. I am afraid, it is precisely thing, Department can do when men making bills fails to tell truth to Revenue. If arguments like one given in paragraph 2 of objection letter, are acceded to, then it will amount to premium on dishonest and will encourage assessee to indulge in illegal activities with impunity. I have already given details of method adopted by ITO to estimate income from these concerns on basis of available bills of these concerns. As man in charge of business failed to say more, then ITO was justified in estimating gross turnover of assessee. indirect suggestion of assessee that Department should find other bills, i.e., produce them and only then estimate income is unheard of not as (sic) per requirement of any civilised law. It is well known that businessmen always issue bills in serial numbers. highest number of bills issued by various concerns and available with Department have been made in basis for estimation by ITO. He has not increased number of bill. I do not find any fault in his working. Estimation of assessee's income from these concerns is approved. (vii) authorised representative of assessee vide his letter dt. 4th Aug., 1982 brought on record 12 letters of transporters of Jodhpur to show that no goods of these concerns were transported by them. For reasons mentioned in (vi) above, evidence is rejected as irrelevant. I wish assessee and his authorised representative had taken equal trouble in giving true particulars to Department, so that facts in matter could have been easily established without botheration of their estimation. (viii) ITO's estimation of initial investment in business of three concerns Rs. 1,50,000 is very reasonable and, therefore, no interference in matter is being made." 3. Aggrieved by this order assessee preferred appeals to CIT (A).The observation of CIT (A) was : (a) Regarding seizure of visiting cards and correspondence of Industrial Chemicals, assessee stating that he does not know anything about them, later correcting it by letter and address in bills which were found to be bogus, adverse inference could be taken against assessee : (b) ITO should have given assessee another opportunity to cross- examine Ratan Lal of Anubhav Traders; (c) Though all goods have been sent to Anubhav Traders only following were found entered in books of Anubhav Traders : Entered in books of Sent Anubhav Traders (i) Amarchand 1000 kg. of Yes Agarwal & Co. Bleaching Powder. 2000 Kg of No Titanium dioxide (ii) Sunder & 6 Only 4 found Co Consignments entered (iii) Industrial 5 Only two found Chemicals Consignments entered Apart from these, there were certain credits favouring Sunder & Co. and Industrial Chemicals which ITO has not examined. (d) Anubhav Traders have sold goods to Gulabdas Jagannath and Gulabdas Jagannath & Associates and, thus, Ratan Lal would have known Mr. Shyam Sunder Dhoot earlier. ITO should have asked Ratan Lal to whether Shyam Sunder Dhoot and Ram Lal Garg are one and same person or not; (e) Books of Anubhav Traders must be examined thoroughly regarding all transactions with assessee; (f) Statement of Praveen Kumar go against assessee. He, therefore, set aside order of ITO to re-examine issue afresh. 4. Aggrieved both assessee and Department have come up before us. Mr. G. D. Gargieya, learned counsel for assessee's argument was that seized documents clearly established fact that assessee had nothing to do with three concerns at all as alleged by Department. According to him, correspondence clearly indicated that assessee did not have anything to do with Industrial Chemicals after March, 1977 when agency was refused. Department had not found any evidence which establishes that assessee had carried on any business in name and style of Industrial Chemicals from 1977 onwards. 4.1 next argument was that setting up of Industrial Chemicals in 1977 was for dealing in industrial spares while concern having similar name did trading of titanium dioxide. 4.2 argument of authorised representative Mr. G. D. Gargieya was that Mr. Shyam Sunder Dhoot never did independent business either in earlier years or in year or subsequently which fact is not disputed by Department. Whatever business he had done was all through and on behalf of firm only. Reference was invited to statement of Madan Raj Mehta partner of Nakoda Transport Co. (pages 17 -21). He then referred to statement of Ratan Lal of Anubhav Traders (pages 93-95) where he had stated of having sold goods to firm Gulabdas Jagannath & Associates on 19th Oct., 1978 which establishes fact that Shyam Sunder Dhoot was known to Ratan Lal. In this letter to ADI, Ratan Lal had stated that Ram Lal Garg represented only Sunder & Co. whom he had known personally, if Ram Lal Garg was in fact Shyam Sunder Dhoot he would have stated so. Mr. G. D. Gargieya further submitted that some photograph purported to be of Ram Lal Garg was shown to Ratan Lal which he had recognised but he was made to sign on back of photograph of Shyam Sunder Dhoot. It is assessee's misfortune that he had to go to Ahmedabad on 6th March, 1982, as otherwise on that day itself Ratan Lal would have clarified that Ram Lal Garg and Shyam Sunder Dhoot are two different persons. He made reference to page 102 where affidavit of Branch Manager at Jodhpur Office of Anubhav Traders is provided wherein he has stated that Ratan Lal had known Shyam Sunder Dhoot for quite sometime as Shyam Sunder Dhoot used to come to their office. ITO waited almost over 20 days before he had made assessment. He could have easily afforded another opportunity to assessee. Even IAC refused opportunity to assessee. 4.3 Mr. G. D. Gargieya then submitted out of 13 bills, Department had provided only six bills. He then by referring to serial numbers of bills submitted that Sunder & Co. issued bill No. 1048 on 30th Sept., 1978 and is said to have issued bill No. 1013 on 26th Oct., 1978 which bill number is very much earlier. Similarly, in case of Industrial Chemicals bill No. 1875 is dt. 9th Nov., 1978 while bill No. 1539 is dt. 7th Feb., 1979. 4 . 4 Mr. G. D. Gargieya submitted that ITO made very detailed examination of all transaction with Anubhav Traders of earlier years and found to his satisfaction that all such transactions carried out by firms Gulabdas Jagannath and Gulabdas Jagannath & Associates were all genuine. In year sales tax authorities have confirmed that three concerns were fake while Anubhav Traders have allegedly issued 'C' Forms to them. Mr. G. D. Gargieya laid emphasis on this point to effect that Anubhav Traders three firms had been carrying on certain clandestine dealings and to cover up same being dug is trying to make assessee scape goat. This further establishes his grievance, he submitted about opportunity not being given to assessee to cross-examine Ratan Lal. 4.5 Mr. G. D. Gargieya pleaded strongly that Department has assumed motives that assessee was trying to evade issue by not presenting himself on 6th March, 1982 when fact is that he was away in connection with sales conference (pages 59-64). He made reference to letter dt. 12th May, 1983 from ITO to CIT (A) which clearly indicates that everything is being assumed and adverse inference drawn on no basis. 4.6 Mr. G. D. Gargieya then referred to assessee's affidavit as also statement of Madan Raj Mehta as also his affidavit (pages 71-72, 40-45) to point that Madan Raj Mehta clearly stated that he did not know sender or three firms while Praveen Kumar's answers to questions 7, 8, 11, 18 and 24 clearly indicate that he was tutored to say so and he had said to riggle out his firm from clutches of Department. Mr. G. D. Gargieya submitted that ever Praveen Kumar's statement clearly goes to establish that Praveen Kumar only assumed that Shyam Sunder Dhoot to be owner of three firms as identical products was dealt in by assessee and since according to him, Shyam Sunder Dhoot talked to him about transportation charges and after some time goods have come to his office, he had thought that goods were sent by Shyam Sunder Dhoot. This by itself feeling of person but not finding of fact and from this any adverse inference as is drawn is totally incorrect. According to Mr. G. D. Gargieya Department has no positive evidence and let alone any circumstantial evidence at all against assessee. He then referred to pages 81-92 where statement of various transporters are attached none of them had transported any goods of three firms in year under consideration. This point was made in connection with observation of ITO in estimating sales at Rs. 7.5 crores. Department had carried out search for over six days and could not point out any defect with books of firms of assessee nor they had found any unaccounted stocks or any other evidence which could lead to conclusion that assessee had done any dealings outside books. Further, he submitted by reference to copy of balance sheet of Travancore Titanium Product Ltd., Government of India Enterprise (page 137), only concern in India manufacturing products titanium dioxide, its total sales all over India is about Rs. 8 crores, estimates of ITO that assessee had dealt in goods of value of over Rs. 7.5 crores in thus clearly established to be totally baseless. Apart from assessee concern had dealers and consumers in Rajasthan (page 121). 4.7 Mr. G. D. Gargieya further submitted that Department have failed to establish by any cogent evidence that assessee had to do anything with fake firms as they have not found any cash or investment in firms or bullion or jewellery which assessee had failed to explain. In case any person who does business which are not recorded at all, same would be found in shape of some unexplained cash or/other equivalent which is not case at all here. Even alleged initial investment of Rs. 1.50 lakhs is pure imagination which is added under s. 69A of Act which addition could have been sustained only when such investment is established. Mr. G. D. Gargieya, therefore, pleaded that entire addition is mere surmise of ITO and needed only to be deleted. He relied on J. K. Synthetics Ltd. vs. O. S. Bajpai, ITO (1975) CTR (All) 256 : (1976) 105 ITR 864 (All), State of Kerala vs. K. T. Shaduli Grocery Dealer 1977 Tax LR 2031 (SC) at page 2033, Ganga Prasad Sharma vs. CIT (1981) 127 ITR 27 (MP), Kishinchand Chellaram vs. CIT (1980) 123 ITR 713 (SC), CIT vs. Simon Carves Ltd. 1976 CTR (SC) 418 : (1976) 105 ITR 212 (SC), Raj Mohan Saha vs. CIT (1964) 52 231 (Assam), Roshan Di Hatti vs. CIT 1977 CTR (SC) 200 : (1977) 107 ITR 938 (SC), Bhimraj Pannalal vs. CIT (1961) 412 ITR 221 (SC), T. C. N. Menon vs. ITO 1973 Tax LR 1476 (Ker) and Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC). 5 . Mr. S. S. Ruhela, learned Departmental representative submitted that observations by ITO are absolutely on evidence which only needed to be upheld. ITO had clearly made observation that assessee's letter of 12th Sept., 1979 is only afterthought as initially he pleaded ignorance about seized documents. assessee had not be able to shake Praveen Kumar's statement which directly point out double game played by assessee. Statement of Madan Raj Mehta is not reliable as it is too general and not specific. Ratan Lal clearly recognised photograph of Shyam Sunder Dhoot to be Ram Lal Garg. Shyam Sunder Dhoot's affidavit is self-serving statement which is no evidence. He placed reliance on CIT vs. Durga Prasad More 1973 C T R (SC) 500 : (1971) 82 ITR 540 (SC), Bhagatpura Motor Transport Co- operative Society Ltd. vs. K. S. Jhala AIR 1965 Raj. 149 and Shyamsingh vs. Dy. Inspector General of Police AIR 1965 Raj. 140. According to Mr. S. S. Ruhela CIT (A) contradicting his views (sic). In paragraphs 18 to 21 he had found that assessee has impersonated as Ram Lal Garg but wants ITO to examine issue and again in paragraph 22 he mentions that statement of Praveen Kumar clearly establishes that it was Shyam Sunder Dhoot who had sent goods to Ahmedabad. But with all that he sets aside orders of ITO. He, therefore, pleaded that order of ITO needed to be restored. 6. We have heard parties and considered all materials that have on assessee on basis of information collected at time of similar operations on transport operators. From Nakoda Transport Co. Department had collected information that three firms Sunder & Co., Amarchand Agarwal & Co., and Industrial Chemicals had sent goods vide 13 bills through them to Anubhav Traders, Ahmedabad. Anubhav Traders, accepted having received some goods through Nakoda Transport Co. from three parties. Nowhere they had mentioned how and to whom payment was made, i.e., by cash, cheque or banker's draft while they had mentioned that for sales made to Gulabdas Jagannath on 19th Oct., 1978, price wax paid by banker's draft. Department clearly failed to examine this part and had they done this exercise they would have established valid case against tax evader. Apart from this in survey they seized visiting card bearing name of Industrial Chemicals and some correspondence of February and March, 1977 which indicates that assessee desired to have agency of industrial spares which project dieds very soon even before its birth. only coincidence is that name Industrial Chemicals which has purported to have sold goods to Anubhav Traders. There is no denial that documents do raise doubt in view of identical names, but that by itself would mean nothing unless by cogent evidence it is established that assessee had done some clandestine sales. This could have been established if Department had found cash, investment, jewellery, etc., at this time of search which assessee failed to explain. In instant case, undisputed fact that remains is that no such unexplained cash, etc., have been detected or found by Department. 6.1 other issue made by Department is that on 23rd Aug., 1979, i.e., on date of survey assessee denied flatly to have known firm Industrial Chemicals at all, which was later contradicted by letter dt. 12th Sept., 1979 where assessee stated that he had desired to start firm by name of Industrial Chemicals in 1977 and could not do so as agency was refused and conclusion was drawn by Department that assessee is only trying to cover u p . We are unable to accept this so-called natural conclusion drawn by Department for reason that what assessee stated was at particular period of time and from 1977 he did not carry on any business by name of Industrial Chemicals. This he had clarified by letter dt. 12th Sept., 1979. sheer fact that correspondence ended in March, 1977 goes to indicate that there was nothing contradictory in what assessee stated on 23rd Aug., 1979 and on 12th Sept., 1979. Merely for reason that Industrial Chemicals, and assessee deals in similar goods conclusion drawn by ITO in our opinion is invalid as assessee has shown from letter of manufacturer of titanium dioxide that apart from assessee, goods were sold by them to three parties that too only at Jodhpur. 6.2 Much reliance has been on statement of Praveen Kumar. Praveen Kumar's statement clearly indicates that he only presumed that same person had sent goods who enquired of him about transportation charges and this presumption he had based on basis of time, i.e., within about two hours of enquiry goods came to him for despatches. presumption is also based in similar nature of goods. Praveen Kumar admits that Shyam Sunder Dhoot never mentioned names of three firms but he concluded it to be belonging to him as said firms dealt with similar goods whose goods were transported by his trucks. Another reason given by him for his conclusion that Shyam Sunder Dhoot was owner of three firms was that he was aware of number of sister concerns of one firm. Department on basis of this statement which is entirely presumption and opinion or feeling of person had held assessee to be owner of three firms. Praveen Kumar's statement clearly reveals that his conclusions are not based on any facts or evidence and Department have not placed any evidence to lead us to conclusion that statement is reliable to sustain any addition on assessee. 6.3 Ratan Lal's statement on 6th March, 1982 again cannot be held against assessee. reason being he had earlier on 8th May, 1979 had given sales tax numbers of three firms and also admitted to have received some of consignments. He had apparently issued C Forms which dealer is required to provide to another dealer as dealer is not required to pay sales tax when he purchased from another dealer. He is totally silent about manner of payment of these consignments. Further records of Nakoda Transport Co., shows that all 13 consignments were sent to Anubhav Traders while Anubhav Traders acknowledges only part as having sold goods to Gulabdas Jagannath & Associates on 19th Oct., 1978 for which payment was duly received by bankers' draft but very carefully omitted about goods purchased by it from three firms or to even to provide any explanation about part of consignment which was sent to them but not shown as received. All this only lead us to conclude that statement of 6th March, 1982 by Ratan Lal was premediated one and given to escape out from Department. 6.4 Department had kept assessee in dark by not informing about proposed examination of Ratan Lal on 6th March, 1982, perhaps on genuine belief that Shyam Sunder Dhoot and Ram Lal Garg were one and same person and by informing of such examination assessee might not turn up at all. When assessee did not present himself, Department concluded that assessee had avoided being recognised and concluded that doubt has been proved to be correct. This made them to refuse another opportunity to assessee to cross-examined Ratan Lal. When we consider fact of letter dt. 8th May, 1979 from Ratan Lal as also statement of Branch Manager at Jodhpur of Anubhav Traders, it only establishes that Shyam Sunder Dhoot and Ratan Lal had known each other as traders in same line of business and, therefore, Shyam Sunder Dhoot and Ram Lal Garg are two different persons. Therefore, statement of 6th March, 1982 is unreliable as evidence against assessee. 6.5 As already mentioned earlier, Department seized only visiting card and correspondence of 1977 between Industrial Chemicals and Gujarat Chemicals Distillers. bills of three firms were not found in premises of assessee. Except for letter pads, nothing else was found. No books of account of three firms were found in assessee's premises. No cash or other investment has been found. only two aspects that are existing are : similarity of name Industrial Chemicals and similar type of goods traded in. Are these sufficient to indict person ? In our opinion, these are clearly not at all sufficient. 6.6 Department provided assessee copies of only six bills out of total 13. Even here, by referring to serial numbers of these bills we find as pointed out by assessee's counsel that in case of Sunder & Co. bill No. 1048 is dt. 30th Sept., 1978 while bill No. 1013 is dt. 26th Oct., 1978 and similar is case with bills of Industrial Chemicals. Bill No. 1875 is dt. 19th Nov., 1978 while bill No. 1539 is dt. 7th Feb., 1979. Latter serial number of bills appears as issued earlier, while earlier serial numbers of bills are issued subsequently. When taking action under s. 132, ITO has right to make all kinds of presumptions but while making assessment additions, if any, or best judgment must be based on some reasonable evidence. As already pointed out, Department has not found any cash or investment of whatever sort which assessee could not explain, but on other hand, ITO was thoroughly satisfied with books results of firms after detailed checking. only addition which was made was so-called unaccounted for sales by assessee and alleged initial investment of Rs. 1.50 lakhs. There has been no withdrawal from anywhere to extent. Even addition of Rs. 1.50 lakhs which was made under s. 69A is again totally imaginary. For making any addition under s. 69A, Department must have detected some actual investment which assessee had failed to explain. reading of section indicates that for making addition, investment must have been established and no addition can be made on what is called investment would or should have been made. Department believing what they had collected as sufficient material against assessee and on basis of bill numbers concluded that total number of bills not accounted for was over 7,000 and arrived at total sale of Rs. 7.50 crores. Department had known that Travancore Titanium Products Ltd. were only manufacturer in India of titanium dioxide whose products assessee used to deal in through his firms. At best Department could have possibly enquired of total quantity manufactured by them and sold by them in Jodhpur. As per manufacturer's balance sheet they had produced total quantity of 8362 M. tons in year which yielded them turnover of around Rs. 8 crores. This manufacture is Government of India enterprise and has supplied vide letter dt. 6th Nov., 1979 list of parties other than Gulabdas Jagannath & Associates which does not include names of three firms. Therefore, this clearly established that assessee would not have purchased whole of goods manufactured and, therefore, sales estimated is purely imaginary which under no circumstances can be said to be best judgment of ITO. Times and again, Courts have repeatedly had held that even best judgment must be reasonable and near about reality. Madhya Pradesh High Court in case of Ganga Prasad Sharma (supra) have held that while making best judgment assessment though there must necessarily be guesswork in matter it must not be arbitrary. Gauhati High Court in case of Raj Mohan Saha (supra) have observed that ITO is not entitled to make pure guess and make assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support assessment. They have further observed if ITO's findings were based on mere guess and could not be supported, same cannot be said to be material to sustain findings. 6.7 Supreme Court in case of Kishinchand Chellaram (supra) have observed making addition based on hearsay is not permitted. In that case there were telegraphic transfer by employee of assessee from one office to another. ITO wrote two letters to manager of bank. said letters were not provided to assessee. manager confirmed that telegraphic transfer sent from Madras was received by Bombay office and amount was paid to employee of assessee on same date at Bombay. O n basis of letters Tribunal concluded that amounts were transferred by assessee and, therefore, was undisclosed income of assessee. Supreme Court observed that two letters from bank manager do not constitute any material evidence which Tribunal could take into account for purpose of arriving at finding that sum was remitted by assessee and if these two letters were eliminated there was no material evidence at all which could support its finding. statement of manager in those two letters were based on hearsay. 6 . 8 Supreme Court in Roshan Di Hatti's case (supra) made observation that onus of providing cause of sum of money found to have been received by assessee is on him. If he disputes liability for tax, it is for him to show either that receipt was not income or that if it was exempted from taxation under provisions of Act. They have made further observation that answer to certain formal questions given by assessee could not be basis for coming to conclusion that assessee has no explanation or evidence to support it. 6.9 In famous case of Supreme Court Mehta Parikh & Co. (supra) their Lordships held that Court would be entitled to intervene if it appears that fact finding authority has acted without any evidence or upon view of facts which would not reasonably be entertained or facts are such that no person acting judicially and properly as to relevant law would have come to determination in question. In that case Department was questioning about 61 high denomination notes which were encashed by assessee. For about 30 such notes explanation of assessee was rejected purely on surmises and there was no justification for having accepted explanation for part of amount and not applying same for balance. 6.10 In instant case, Department had proceeded right from start that assessee was owner of three firms, i.e., from s. 132 proceedings which according to them become iron clad by statement of Praveen Kumar. entire presumption that assessee was owner according to Department was established by seizure of visiting card and correspondence of 1977. Department had no other evidence apart from visiting card and correspondence of 1977. As already observed no cash or investment, etc., have been found and, in our opinion there can be said to be no material on record let alone any positive evidence which could lead us to conclude that action of ITO was justified at all. Even assessee dealt vide order dt. 30th March, 1984 made under s. 16 (viii) of Act by same office goes further to establish that addition were not at all warranted. We are, therefore, of view that action of Department was wholly unwarranted and no addition could be made on assessee at all. We, therefore, delete entire addition of Rs. 24.15 lakhs. 7 . In assessee's appeal ground No. 10 is in respect of CIT (A) not deciding issue in respect of other grounds taken by assessee before him. In view of fact that we have held that Rs. 24.15 lakhs cannot be assessed as income of assessee, we direct CIT (A) to hear matters relating to ground No. 10 taken before us and dispose of matter. 8. In result, Departmental appeal is dismissed and appeal of assessee is partly allowed. *** INCOME TAX OFFICER v. SHYAM SUNDER DHOOT