BANSAL STRIPS (P) LTD. & ORS. v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2006-LL-0131-15]

Citation 2006-LL-0131-15
Appellant Name BANSAL STRIPS (P) LTD. & ORS.
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 31/01/2006
Assessment Year BLOCK PERIOD 1ST APRIL, 1995 TO 11TH SEPT., 2001
Judgment View Judgment
Keyword Tags assessment of undisclosed income • investment in construction • regular books of account • income chargeable to tax • unexplained expenditure • unexplained investment • cost of construction • revenue authorities • cost of acquisition • date of acquisition • individual capacity • condition precedent • physical inventory • search and seizure • search proceedings • unexplained income • inventory of stock • cross-examination • evidentiary value • additional income • business premises • reason to believe • unaccounted money • trading activity
Bot Summary: The learned counsel for the assessee has rightly pointed out that in answer to question No. 23, Shri V.P. Jain has stated that the commission was paid to him from out of cash sales made by the assessee. The assessee accepted that the paper was found from the car of the assessee but stated that it was not in the handwriting of the assessee. According to the AO, the assessee failed to discharge his onus and assessed the sum of Rs. 15,90,000 as undisclosed income of the assessee. The papers had not been found to have been written by the assessee himself or by any of his family members or even by anybody having any connection with the assessee. The learned counsel argued that for the purpose of block assessment, an addition had to be related to cogent and positive material found during the search proceedings that could prove conclusively that the assessee had either earned an income or made an investment which had not been recorded in the regular books of account maintained by the assessee. The learned Departmental Representative argued that these loose papers were found from the car belonging to the assessee and prima facie those papers were in control and possession of the assessee. These evidences clearly established that the documents in question pertained to the assessee and instead of explaining the nature and transaction in the documents, the assessee was taking shelter under the pretext that the documents were found in a car frequented by many others than by assessee himself.


ORDER As common issues are involved in these 9 appeals, same have been argued together by common counsel of assessees and common Departmental Representative. We are deciding these appeals together for convenience. 2 . These appeals, with exception of IT(SS)A No. 312/Del/2005, have been filed by assessees on 11th Feb., 2005 against orders of learned CIT(A)-I, New Delhi, dated from 21st Oct., 2004 to 1st Nov., 2004 in cases of assessees in relation to orders under s. 158BC for block period 1st April, 1 99 5 to 11th Sept., 2001. Appeal in IT(SS)A No. 312/Del/2005 has been filed by M/s Balaji Wires (P) Ltd. on 23rd June, 2005 against order of learned CIT(A)-I, New Delhi, dt. 17th May, 2005 in relation to order under s. 158BC for block period 1st April, 1 99 5 to 11th Sept., 2001. 3 . facts of case leading to these appeals briefly are that search and seizure operations under s. 132(1) of Act were conducted at various residential and business premises of above named group of assessees called Bansal group on 11th Sept., 2001. Thereafter notices under s. 158BC were issued and in response M/s Bansal Wire Industries Ltd. declared undisclosed income of Rs. 10 lakhs and Smt. Anita Gupta declared undisclosed income of Rs. 9 lakhs in block returns filed by them. AO has in block assessment order made huge additions in every case and substantial part thereof has been confirmed by learned CIT(A). One addition, which is common to 8 appeals, except in case of Smt. Anita Gupta, relates to alleged unexplained payment of commission. particulars of addition in this behalf are as follows : Rs. (i) Bansal Wires Industries 31,32,617 (ii) Bansal Strips (P) Ltd. 30,62,459 (iii) Bansal High Carbons (P) Ltd. 29,330 (iv) Balaji Wires (P) Ltd. 2,75,889 (v) S.S. Pravan Steels (P) Ltd. 1,68,539 (vi) Vikas Electronics International (P) Ltd. 11,696 (vii) Arun Kumar Gupta (HUF) 58,982 (viii) Arun Kumar Gupta (Indl.) 48,861 4 . basis for these additions is certain statements recorded by Dy. Director of IT (Inv.), New Delhi, after completion of search proceedings on 12th Sept., 2001. Dy. Director of IT recorded statement of one Shri Ved Prakash Jain. During course of statement recorded on 25th Sept., 2001, Shri Ved Prakash Jain stated that he had made purchases of value of Rs. 25 crores from various concerns of Bansal group out of which delivery of goods to extent of Rs. 2-3 crores only was taken. For balance goods of Rs. 22 to 23 crores no material/wire was purchased and only bills were issued. According t o statement, Bansal group issued credit sale bills to assessee. assessee in turn showed sales made in cash of those goods; whereas physically nothing was purchased or sold. According to this statement Shri Jain received .5 per cent to .6 per cent commission on account of such billing but after meeting expenses, net profit to Shri Ved Prakash Jain was .1 per cent only. Balance amount was spent on telephone, conveyance, vehicles, accountant, etc. Shri V.P. Jain further stated that cash deposited by him in his bank account in names of his concerns, such as Arihans Traders, Hindustan Wires etc. was cash received by assessee from Shri Arun Kumar Gupta. Shri Jain further stated that in reality Bansal group assessees made sales in cash to some other parties but bills were issued in name of concerns belonging to Shri V.P. Jain. Shri Jain further stated that as on date of statement he was required to issue cheques of Rs. 2-3 crores on account of outstanding credit purchases but he had no stock in hand, because these were merely bills and in reality no wire was purchased. outstanding amount could be squared up only after cash was received from Shri Arun Kumar Gupta of Bansal group. Later on Shri Ved Prakash Jain retracted from statement recorded by DDIT (Inv.) on 25th Sept., 2001. Thereafter statement of Shri V.P. Jain was once again recorded on 14th Dec., 2001 when Shri Jain was cross-examined by Shri Arun Kumar Gupta in office of DDIT (Inv.) and thereafter re-examined by DDIT. In cross-examination Shri Ved Prakash Jain stated that where goods were directly sent to his customers material was not physically received in shop of Shri Ved Prakash Jain and Shri Jain only received bills. He had earlier stated that no goods were physically sold and purchases in relation to sales and purchases made by customers through Shri Jain and goods were directly delivered to addresses of such customers. In relation to commission of .5 per cent to .6 per cent Shri Jain clarified that no commission was received from Bansal group and in earlier statement he had used term "commission" to denote his margin of profit on goods being resold to third parties. Shri Jain clarified that no cash was received from Bansal group but goods/material received from various concerns of Bansal group was sold by him in cash and such cash was deposited in bank. As on date of search payment of goods amounting to Rs. 2 to 2.5 crores was outstanding. There was no stock with him physically because stock in question had been delivered to customers directly. In his re-examination, DDIT (Inv.) asked Shri Jain to furnish mode and details of transport used, to which Shri Jain replied that answer could be given only after consulting records. Shri Jain denied his subsequent statement was afterthought. He also promised to furnish documentary evidence in support of second statement. According to AO, search under s. 132 as well as survey under s. 133A were conducted in relation to concerns controlled by Shri Ved Prakash Jain also. Those operations revealed that no trading was done at large scale as shown by parties. In fact godown of one of concerns, viz., Daulat Ram Deep Chand Jain was found locked and from local enquiries it was gathered that same had remained locked for about 2-3 years; whereas its stock was found at other premises, such as, Phool Bhawan, Ajmeri Gate and at Aram Nagar, Paharganj business premises. According to AO search and survey operation thus, revealed that trading at such large scale, as claimed by parties, was not carried out by concerns of Shri Ved Prakash Jain. retraction statement of Shri Jain was not substantiated, inasmuch as particulars of parties to whom goods were sold directly were not given. Shri Ved Prakash Jain and Shri Arun Kumar Gupta failed to give details of mode of transport used also. No documentary evidence in support of explanation was furnished. In spite of repeated requests books of account were not produced by Shri V.P. Jain. It appeared that retraction statement was given by Shri V.P. Jain after realizing that his confession statement was likely to hurt him as well in his independent block assessment proceedings. learned AO, therefore, concluded that Shri Ved Prakash Jain was doing only billing for Bansal group. He received cash payments, which were deposited in account and thereafter cheques were drawn on that bank account in favour of Bansal group concerns. learned AO held that Shri Ved Prakash Jain received commission @ .6 per cent in respect of purchases shown to him by various group concerns. On that basis, learned AO made addition of Rs. 30,62,459 in following manner : Financial year Entry amount Commission 1 99 5-96 3,33,45,024 2,00,070 1 99 6-97 4,55,45,136 2,73,270 1 99 7-98 9,35,48,272 5,61,289 1 99 8- 99 8,47,53,039 5,08,518 1 99 9-2000 10,76,06,141 6,45,636 2000-01 8,71,93,303 5,23,160 2001-02 5,84,18,396 3,50,516 30,62,459 above working relates to Bansal Strips (P) Ltd. learned AO made similar additions in other cases. 5. During course of appeals before learned CIT(A), assessees objected to addition made on account of alleged unexplained expenditure in shape of commission payments to Shri V.P. Jain. assessee argued that during course of search proceedings no evidence was found of any such bogus payments. assessee pointed out that all three statements of Shri V.P. Jain were at variance. Therefore, no conclusion could be drawn from statements without there being corroborative evidence. assessees had made genuine sales to concerns of Shri Ved Prakash Jain in ordinary course of business, as was evident from sales-tax forms obtained from concerns of Shri V.P. Jain. Such sales were duly reflected in books of account of Shri V.P. Jain. Hence no addition was called for. assessee also argued that under provisions of Chapter XIV-B no additions could be made o n supposition or assumptions. Reliance in this respect was placed on decisions of Tribunal in case of Vinod Kumar Jain vs. Asstt. CIT (2004) 91 TTJ (Del) 134 : (2004) 1 SOT 352 (Del), Faqir Chand Chaman Lal vs. Asstt. CIT 1 SOT 914 (Asr) and K. Moidu Alias Kunhippa & K. Kunheedutty vs. Asstt. CIT (2002) 75 TTJ (Coch)(TM) 864 : (2002) 81 ITD 242 (Coch)(TM) etc. learned CIT(A), however, held that Shri Ved Prakash Jain was not conducting business to extent mentioned by him. No trading in wire was shown at any of business to extent mentioned by him. No trading in wire was shown at any of business premises. Since during course of search most of business premises did not show any trading activity, learned CIT(A) agreed with conclusions drawn by AO that trading at such large scale was not conducted at concerns of Shri V.P. Jain. learned CIT(A) took note of fact that no evidence was furnished in support of retraction statement. Addresses of parties to whom goods were dispatched directly from Bansal group of industries were not enumerated. No material was produced during course of such enquiries. learned CIT(A) referred to question and answer No. 7 in statement of Shri Ved Prakash Jain during course of re- examination by DDIT : "Q. No. 7 In above circumstances why your second statement should not be treated as afterthought. Ans. I do not have any explanation for this. But I have told facts." That showed that Shri Jain had no evidence in support of his retraction. Although Shri Jain had retracted (from) original statement but from that evidentiary value of original statement was not lost. answers given in original statement were direct and to point and clarifications given subsequently did not fit in relation to language of answers given in original statement. Hence statement given by Shri Jain in his cross- examination was not trustworthy. AO had examined matter from every aspect. If Shri Ved Prakash Jain was actually trader he should have been in position to give evidence in support of his contention. On this reasoning learned CIT(A) agreed with finding of AO and upheld addition of Rs. 30,62,459 in case of Bansal Strips (P) Ltd. and similar additions in other cases. 6 . During course of hearing before us, learned counsel for assessee argued that learned CIT(A) was not justified in relying upon original statement of Shri V.P. Jain and ignoring his subsequent statements since original statement was taken behind back of assessee and subsequent statement was given during course of cross-examination. During course of search not iota of material was found to support theory of so-called unexplained expenditure incurred by various concerns of Bansal group. In absence of any material found during course of search, whole issue fell outside scope of block assessment proceedings under provisions of s. 158BC. In support of this contention, learned counsel relied upon decision of Tribunal in case of Sunder Agencies vs. Dy. CIT (1 99 7) 59 TTJ (Mumbai) 610 : (1 99 7) 63 ITD 245 (Mumbai). He also relied upon judgments in case of CIT vs. Dr. M.K.E. Memon (2001) 168 CTR (Bom) 184 : (2001) 248 ITR 310 (Bom), CIT vs. Shambhulal C. Bachkaniwala (2000) 162 CTR (Guj) 435 : (2000) 245 ITR 488 (Guj), CIT vs. Vikram A. Doshi (2002) 256 ITR 129 (Bom). learned counsel also relied upon various Tribunal decisions, such as Harakchand N. Jain vs. Asstt. CIT (1 99 8) 61 TTJ (Mumbai) 223, Jaya S. Shetty vs. Asstt. CIT (1 99 9) 64 TTJ (Mumbai) 551 : (1 99 9) 69 ITD 336 (Mumbai), Dolly Farms & Resorts (P) Ltd. vs. Dy. CIT (2000) 69 TTJ (Del)(TM) 821 : (2000) 74 ITD 147 (Del)(TM), Essem Intra-Port Services (P) Ltd. vs. Asstt. CIT (2000) 68 TTJ (Hyd) 103 : (2000) 72 ITD 228 (Hyd), Chitra Devi vs. Asstt. CIT (2002) 77 TTJ (Jd) 640, Smt. Shanti Rani vs. Asstt. CIT (2003) 126 Taxman 62 (Chd)(Mag) and Petro Impex (India) (P) Ltd. vs. Asstt. CIT (2003) SOT 369 (Del). learned counsel argued that from these judicial pronouncements it was clear that under block assessment undisclosed income was required to be computed on basis of evidence found as result of search and such other material or information as available with AO and relatable to evidence found as result of search. statements recorded during course of search could not be said to be evidence found as result of search though same were obtained during course of search. It was, therefore, necessary to relate these statements with some evidence found during course of search. For purpose of assessment of undisclosed income in block assessment, AO was required to have in his possession some direct or clinching evidence. He could not make ad hoc additions on basis of assumption of facts and hypotheses. In instant case Shri Ved Prakash Jain was trader in wires. assessee-concerns had sold its products to Shri V.P. Jain. These transactions were duly recorded in books of account of assessees as well as Shri Ved Prakash Jain. No incriminating evidence or material was found as result of search indicating any payment of commission outside regular books of account. For arguments sake, without conceding, learned counsel argued that even if it was assumed that assessee had sold goods to some other parties instead of Shri V.P. Jain, that showed that there was sale of corresponding amount wherefrom commission could be paid to Shri V.P. Jain. However, there was no such enquiry. Even statement being relied upon was statement recorded in course of post-search enquiries. same did not constitute material or information for purpose of s. 158BB. learned counsel referred to decision of Tribunal, Delhi, in case of Sterling Tools Ltd. vs. Dy. CIT (2004) 91 TTJ (Del) 261 to effect that post-search enquiries cannot be made basis of addition. Same view had been taken by Hon ble Madhya Pradesh High Court in case of CIT vs. Khushlal Chand Nirmal Kumar (2003) 183 CTR (MP) 503 : (2003) 263 ITR 77 (MP). In any case statement was retracted by Shri V.P. Jain in cross-examination by Shri Arun Kumar Gupta. earlier statement was recorded behind back of assessee and, therefore, could not be utilized as evidence against assessee. In support of those contentions, learned counsel relied upon judgments reported in P.S. Abdul Majeed vs. Agrl. ITO & Ors. (1 99 4) 120 CTR (Ker) 10 : (1 99 4) 209 ITR 821 (Ker), CIT vs. Eastern Commercial Enterprises (1 99 5) 123 CTR (Cal) 217 : (1 99 4) 210 ITR 103 (Cal), Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360 : (1980) 125 ITR 713 (SC), Hirji Nagji & Co. vs. CIT (1976) 105 ITR 286 (Ori), J.K. Synthetics Ltd. vs. ITO (1986) 19 ITD 102 (Ori), C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC) and CIT vs. Biju Patnaik (1 99 ) 90 CTR (Ori) 192 : (1 99 1) 190 ITR 396 (Ori). 7 . Without prejudice, learned counsel argued that in any case no addition could be made in assessments of assessee-group because according to AO amounts allegedly paid to Shri V.P. Jain were in nature of unexplained expenditure. addition under s. 69C in respect of unexplained expenditure could be made only after source thereof remained unexplained. In instant case source had been duly explained in very statement relied upon so heavily by AO. In support of this contention, reference was made to question and answer No. 23 of first statement of Shri V.P. Jain, dt. 25th Sept., 2001. As such only so-called evidence relied upon by AO did not leave any room for assessment of any undisclosed income in hands of assessee. 8. learned Departmental Representative argued that during course of search, books of account recording transactions of assessee with various concerns of Shri V.P. Jain were found. It could not, therefore, be said that additions made on account of unexplained commission expenditure had no nexus with search and seizure operations under s. 132 in case of assessee. These books of account reflected receipt of payment from Shri Jain by way of account payee cheques. During course of search, genuineness of transactions recorded in books of account was examined. Statement of Shri Jain was recorded in wake of search at premises of assessee. AO was, therefore, entitled to include unexplained income based on statement recorded in order under s. 158BC. In law it was not necessary to conclude enquiries also along with search proceedings. clues found during course of search could be pursued subsequently and if any material towards undisclosed income was gathered, same could be said to b e evidence/material relatable to material found during course of search. 9 . learned Departmental Representative argued that reference made by learned counsel for assessee to question and answer No. 23 in original statement was misplaced. If assessee relied upon answer to question No. 23, he should rely upon whole statement and not merely portion thereof. There was also no force in contention of assessee that statement originally given was subsequently retracted upon. Examination of Shri Jain conducted by assessee subsequently and re-examination of Shri Jain by DDIT subsequently was required to be read as continuation of statement originally given by Shri V.P. Jain. If original statement given by Shri V.P. Jain was kept in view, it could be found that in subsequent statement futile effort was made to clarify statement originally given. Secondly, original statement given by Mr. V.P. Jain under s. 132(4) had enormous evidentiary value. learned Departmental Representative referred to question and answer No. 61 in statement recorded on 2nd Nov., 2001. In that statement Shri Arun Gupta merely stated in respect of loose papers, "I do not know". Thus, no attempt has been made in statement of Shri Arun Gupta to furnish plausible explanation. learned Departmental Representative referred to paper book pp. 211-212 and pointed out that large amounts were recorded by way of receipt or payment of cash. There was no specific explanation in respect of such loose documents. These loose documents enumerating cash transactions were evidence corroborating original statement of Shri V.P. Jain. 10. We have considered rival submissions. From plethora of Tribunal decisions and High Courts judgments, it is settled legal position now that while making order under s. 158BC, AO does not have same jurisdiction that he has while assessing income of assessee under general provisions of Act. order under s. 158BC can be made only in respect of undisclosed income that he determines as result of search. It is not correct position in law that while completing order under s. 158BC, AO can make assessment of entire undisclosed income that comes to his notice during course of proceedings under s. 158BC. He can make assessment of only that undisclosed income which has direct nexus with search proceedings in case of assessee. During course of hearing before us, learned counsel for assessee has categorically stated that during course of search proceedings, under s. 132 no incriminating material was found or detected that could point to payment of alleged commission to Shri V.P. Jain. search proceedings in case of assessee commenced on 11th Sept., 2001 and same were concluded on 12th Sept., 2001. During course of search proceedings, no statement of Shri V.P. Jain was recorded. First statement of Shri V.P. Jain was recorded on 25th Sept., 2001. That statement is sole basis so far as additions in respect of unexplained commission payments have been made in assessments of various assessees of this group. Under these circumstances it cannot be said that any material pointing towards undisclosed commission payments to Shri V.P. Jain was discovered during course of search. learned Departmental Representative has placed heavy reliance on fact that during course of search proceedings, books of account were found wherein transactions of assessee with Shri V.P. Jain and various concerns of Shri V.P. Jain were found. During course of search proceedings, books of account maintained by assessee in regular course are supposed to be found. Had such books of account been not found, that could have been circumstance against assessee. argument that as Department decided to verify contents of books of account and enquired into genuineness thereof, subsequent enquiry and material gathered should be treated as result of search is far-fetched. As far as books of account were concerned, same support case of assessee and do not contain any incriminating material. Statement of Shri Ved Prakash Jain cannot be considered to be part of search or even result of search. Such statement could have been recorded in ordinary course of enquiry in case of assessee. It is important to bear in mind that every enquiry conducted by Department after date of search cannot be presumed to be enquiry as result of search unless and until that enquiry can be linked to some specific material or evidence detected during course of search. We are, therefore, of considered opinion that additions based on statement of Shri V.P. Jain cannot be treated to be consequence of search carried out at premises of assessee before us. We, therefore, hold that these additions do not fall within scope of order under s. 158BC of Act and are, therefore, liable to be excluded for that reason alone. 11. Apart from fact that addition under s. 69C made by AO on account of alleged payments to Shri V.P. Jain cannot be subject-matter of block assessment orders in cases of assessee before us, we find that even otherwise addition has been made on inadequate material. In this case, only basis on which additions have been made is first statement of Shri V.P. Jain. learned counsel for assessee has rightly pointed out that in answer to question No. 23, Shri V.P. Jain has stated that commission was paid to him from out of cash sales made by assessee. Shri V.P. Jain categorically stated that by this modus operandi Bansal group did not derive any benefit and amount of commission had been collected from parties to whom wires were sold against cash payment. Bansal group only passed commission to Shri Jain. Hence if reliance is placed on statement as given by Shri V.P. Jain source of alleged commission is self-explained. While relying on aforesaid statement of Shri V.P. Jain AO, in absence of any specific material, is not justified in adopting pick and choose policy. He cannot selectively rely upon parts of statement against assessees and at same time ignore other parts which go in favour of assessee before us. Secondly, apart from this statement there is not iota of corroborative material in possession of Department that alleged commission was indeed paid to Shri V.P. Jain. This statement was recorded by t h e DDIT behind back of assessees. When at request of assessees opportunity to cross-examination was given, Shri V.P. Jain clarified that there were direct sales to third parties at instance of concerns of Shri V.P. Jain and what he meant by commission was his margin of profit on such direct sales. In other words, no commission was paid to him by assessees, s alleged in impugned orders. It is well-settled legal position after judgment of Hon ble Supreme Court in case of Kishinchand Chellaram (supra) that any material collected by AO behind back of assessee cannot be used against him unless assessee has been allowed chance to rebut same. Furthermore, no reasons have been given as to why statement of Shri V.P. Jain should be accepted to be true while statement of assessee well supported by regular books of account should be assumed to be false. 1 2 . In view of discussion in foregoing paras we do not see justification for additions made in cases of assessees before us on ground of alleged unexplained payments to Shri V.P. Jain. We, therefore, delete same. 1 3 . second major issue involved in these appeals relates to additions as sustained by learned CIT(A) on ground of excess stock being found during course of search. details of such additions are as follows : Name Addition Nature Sustained Appeal Ground of made by of addition by CIT(A) Nos. Nos. assessee AO Bansal Excess Strips (P) 9,87,696 9,87,696 69/D/2005 2-3 stock Ltd. Confirmed Balaji Excess subject to Wires (P) 25,51,497 312/D/2005 1-3 stock change in Ltd. average weight. S.S. Pranav Excess 1,56,150 1,53,027 70/D/2005 1-2 Steels (P) stock Ltd. Bansal Wires Stock 80,280 80,270 76/D/2005 1-2 Industries shortage Ltd. Total for 37,75,613 group Facts of case leading to this dispute briefly are that concerns named above were engaged in manufacturing of mild steel galvanized iron wires. During course of search proceedings under s. 132 at premises of aforesaid business concerns, attempt was made to inventorise stock-in- hand as physically found. stock was lying at various premises and godowns of assessee in thousands of bundles. officers conducting search did not carry out exercise of actual weighment of goods. weight in stock inventory was taken on estimate basis. When stock as per these inventories was compared with stock position as reflected in books of account of these concerns, it was noticed that stock inventoried was far in excess, for example in case of Balaji Wires (P) Ltd., stock as per inventory prepared at time of search was 425.225 MT, whereas stock as per books was 294.379 MT only. Thus, according to AO there was excess stock of 130.846 MT. By applying average rate of Rs. 19.50 per kg., excess stock was valued at Rs. 25,51,497. Similarly, discrepancies were worked out in respect of other business concerns. During course of block assessment proceedings assessee was asked to explain difference in stock. In case of Balaji Wires (P) Ltd., following reply was given : "It has been already pleaded in our last submissions that stock found and inventoried by search party was inaccurate. difference of excess stock of 130.846 MT arrived at has been without any basis. count of bundles on eye estimation and not by actual counting is incorrect. discrepancies crept in inventory due to method of stock taking adopted by search party is glaring in case of finished stock. From inventory of finished stock annexed with Panchnama it can be seen that weight of bundles of fine wire in various gauges have been taken as 65 kgs. for each bundle for items mentioned on serial Nos. 1 to 8 and 20 kgs. for all items taken on serial Nos. 10 to 14. We shall like to point out that weight of bundle varies according to different size of wire. In support we submit herewith photocopies of few sales invoices, where weight of bundle of fine wire as per serial Nos. 1 to 8 coming to 45 kgs. whereas weight taken in inventory is 65 kgs. for all 8 items. Similarly, in case of fine wires mentioned at serial No. 10 to 14 average weight per bundle is taken as 20 kgs. We enclose herewith photocopy of sales invoices of these wires where average weight per bundle is coming to around 12 kgs. per bundle." Similar replies were given by other assessees. learned AO argued that t h e inventory of stock had been taken in presence of assessee s representative and two independent Panchas. During course of search operations and even thereafter no objection was raised regarding authenticity of inventory. AO held that explanation given by assessee was only afterthought that was not well supported. AO selected bill No. 12392 of Balaji Wires (P) Ltd. and pointed out that 37 bundles of 2846 kgs. were transacted on 31st Aug., 2001. In other words, average weight per bundle was 76.91 kgs. as against same during course of search bundles comprising average weight of 68.08 kgs. to 100.33 kgs. were found. There was no force in contention of assessee that average weight of bundle was 45 kgs. Thus, learned AO supported his finding of excess stock being found during course of search. Accordingly, he made additions as above enumerated. 14. During course of hearing before learned CIT(A), assessee argued that method of stock taking adopted by search party was eye estimation counting of bundle in rows and then multiplying same with average weight of bundle in that scissor of bundles. On that basis search party arrived at estimated number of 7866 bundles and total weight was worked out at average weight of 65 kgs. per bundle. Even correct counting of total number of bundles of 7866 by search party was physically impossible within few hours search was carried out. There was gross error in counting number of bundles in this way. Secondly, there was no uniform weight per bundle of wire. There was no basis for average weight of 65 kg. taken in inventory. learned CIT(A) found that assessee had maintained stock registers on basis of weight only. assessee produced steel wire of different gauges and record thereof was not kept. With margin of error of less than .1 per cent depending on thickness of steel wire, weight could be calculated on basis of length produced. From Panchnama, it was seen that search party spent about 10 hours of stock taking assisted by employees of factory. stock of wires was not heavily stacked but widely spread out. With daily experience of handling materials, staff guided search party in counting number of bundles. Since inventory was prepared on complete assistance from employees of factory familiar with day-to-day handling of stock, number was precisely arrived at 7866. Such counting inventoried in 5 pages could not be brushed aside as mere eye estimation. There could not be wide variation in counting of number of bundles. As to argument of assessee relating to weight ascribed to 7866 bundles, learned CIT(A) noted that products of assessee were ISI marked. In other words weight could be arrived at on basis of thickness of wire and length of wire with margin of error of less than .1 per cent. assessees employees had quoted different weight for different set of bundles on such basis. inventories comprised of six different weights, 40, 45, 65, 75 and 90 kgs. This variation could not be mere eye estimation. learned CIT(A) examined sale invoices. According to him large number of bundles had weight more than 65 kgs. He held that average weight could not be 45 kgs. per bundle. He, however, reduced weight taken by learned AO at 65 kgs. to 60 kgs. per bundle. In respect of fine wire products he reduced average weight from 20 kgs. taken by AO to 16 kgs. average price applied by AO was upheld. On this basis learned CIT(A) by and large sustained addition made by AO with some relief granted to assessee. Still aggrieved, assessees are in appeal before us. 15. During course of hearing before us learned counsel for assessee argued that Bansal group of assessees were engaged in business of manufacturing mild steel galvanized wire, stainless steel wire and black wires in various gauges and sizes. For proper weighment of such stock it was necessary to employ proper mechanical device. search party did not use any mechanical device and they also did not utilize services of experts. method of stock taking was estimation of number of bundles by eye glance counting. same was bound to be erroneous. Similarly weight of stock was not arrived at by physical weighment of entire stock but figure of average weight of bundle was worked out by sampling method. As to raw material used by assessee, that is wire rods, same were heavy and could not be easily handled manually without help of crane. Raw material and finished goods of assessee were in bundles/coils of different thickness and weight. manufacturing process in assessees factories was not automatic and electronically controlled. manufacturing process was carried out on local machines by unskilled labour. Due to process involved weight of bundle was not uniform and varied from bundle to bundle. bundles, coils and gushes were stored on factory floors in stacks. Being heavy bundles were not stacked in vertical rows. same were stored in scissor like fashion. Counting number of bundles stored in scissor like fashion was very difficult task. In support of these contentions learned counsel placed reliance on photographs enclosed at pp. 153 to 167 of paper book. It was argued on basis of photographs that precise counting of bundles was not possible within few hours. Therefore, search party resorted to eye estimation. No actual weighment was done even though employees present on date of search were ready to co-operate in getting total material weighed. Of course same would have required few days and not merely few hours, that was not spared by search party. But for proper physical stock taking there was no alternative to actual weighment. staff present on date of search voiced these concerns but they could not strongly protest out o f fear and nervousness. In end they signed on inventory as per directions of search party and not out of their own free will and consent. management of Bansal group was not party to such stock taking. Shri Arun Kumar Gupta objected to faulty procedure in his statement recorded on 29th Nov., 2001. He stated that inventory of stock had been taken in totally wrong way. Counting of thousands of bundles was not possible in given frame of time. Weight was taken on approximate basis. amount of excess stock worked out was not possible. Excessive average weight was applied. It could not, therefore, be said that assessees did not register their objection soon after search. However, objections raised in statement of Shri Arun Kumar Gupta on 29th Nov., 2001 were not heeded. Had stock been actually weighed, there could be no variation. alleged excess stock was creation of faulty process of stock taking adopted by search party and did not exist in reality. learned counsel referred to decision of Tribunal, Cuttack (Third Member) in case of Utkal Steels Ltd. vs. Dy. CIT (2002) 77 TTJ (Cuttack)(TM) 720 : (2002) 82 ITD 120 (Cuttack)(TM) wherein relying upon judgment of Hon ble Orissa High Court in case of Haribhagat Agarwalla vs. State of Orissa 51 STC 355 (Ori), it was held, that no addition could be made on basis of difference of stock arrived at by sampling method. It was held in that case that assessing authorities were not justified in estimating value of stock without physically weighing them, particularly when assessees maintained regular books of account which were checked by Central excise authorities from time to time. 16. learned counsel pointed out that in case of Bansal Strips (P) Ltd. physical stock taken included stock of scrap to tune of 700 kgs. In that case also average weight per bundle/coil taken in inventory was on very high side. average weight was taken at 79.05 kgs.; whereas in respect of drawing grade wire weight of bundle was around 50 kgs. only. While doing so authorities completely ignored sales invoices. On contrary they picked up only favourable instances from point of view of Revenue. In case of Balaji Wires (P) Ltd. stocks of raw material, semi-finished and finished goods were inventoried. nature of difference in these three types of stocks was not appreciated. same rate of average weight was applied in respect of different nature of stock in hand. There were several inconsistencies in inventories prepared which would be evident even to lay person. For example, there were following glaring deficiencies and discrepancies : On p. 1 of inventory (refer to p. 75 of paper book), at serial Nos. 5 and 6, weight per bundle is taken uniformly at 47 kgs. per bundle for wires of 2.90 mm and 3.40 mm, respectively. On p. 2 of inventory (p. 76 of paper book) at serial Nos. 5 and 6, gauges are 2.70 and 3.40 but bundle weight is taken uniformly at 80 kgs. which is impracticable. Similarly at p. 5 of inventory (p. 79 of paper book) showing stock of finished products, weight per bundle is taken at 65 kgs. uniformly from serial Nos. 1 to 8, although materials are different in gauges. Again, on same page, bundle weight is taken at 20 kgs. at sl. Nos. 10 to 14 for different thickness of materials." 17. learned counsel argued that there was no credibility of average weight taken by search party. same was based after picking up instances of higher weight bundles. During course of hearing before learned CIT(A) it was pointed out that sale invoices comprised of bundles weighing from 8.54 kgs. to 80.77 kgs. per bundle. AO quoted examples of few seized bills only in order to support alleged figure of 65 kgs. per bundle. AO consciously referred to selected bills wherein weight of bundle was on higher side, while he completely ignored other bills in same seized material which showed much lower weight per bundle. learned AO has enumerated only 7 bills from out of 818 pages of seized invoices. relief granted by learned CIT(A) after taking note of such defects was paltry. learned CIT(A) merely made fresh estimate without actually working out concisely average weight emerging from seized bills. Even otherwise number of bundles counted by search party itself was in dispute. Similar gross errors were committed by search party in cases of other assessees of group as well. It was for this reason that in one case search party arrived at shortage. In that case search party forgot to take into account stock of material-in-process. stock of raw material in furnaces as well on number of machines was not inventorised. 18. learned counsel argued that AO adopted as thumb rule that excess represented unaccounted purchases and shortage represented sales outside books of account. During course of search proceedings, entire premises of assessee were scanned and all books of account and documents were taken possession of. Apart from relying on faulty inventory of stock prepared AO has not been able to refer to iota of material to corroborate or lend support to such findings. For example not single bill or paper indicating any purchase or sale of material outside regular books of account during course of entire search operation. No other document or loose paper/document supporting business out of books of account was found. That could not be case if assessee had indulged in sale/purchase of material outside books on such enormous scale. 19. learned counsel argued that it was settled legal position that for assessment of undisclosed income in block assessment proceedings under s. 158BC, there should be cogent evidence of undisclosed income in fact having been earned as result of search. In block assessment proceedings, there was no room for any assumptions or hypotheses. There was no material of any undisclosed sale or undisclosed purchase. In these circumstances, it was not open to assess undisclosed income on basis of surmises, conjectures and estimates. Reliance in this behalf was placed on judgments reported in CIT vs. Vinod Danchand Ghodawat (2000) 163 CTR (Bom) 432 : (2001) 247 ITR 448 (Bom), CIT vs. Rajendra Prasad Gupta (2001) 166 CTR (Raj) 83 : (2001) 248 ITR 350 (Raj), CIT vs. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del) and on Tribunal decisions reported in Pooja Bhatt vs. Asstt. CIT (2000) 66 TTJ (Mumbai) 817 : (2000) 73 ITD 208 (Mumbai), Virinder Bhatia & Ors. vs. Dy. CIT (2002) 74 TTJ (Del) 60, (2002) 75 TTJ (Coch)(TM) 864 : (2002) 81 ITD 242 (Coch)(TM) (supra) and First Leasing Co. of India Ltd. vs. Asstt. CIT (2001) 70 TTJ (Chennai)(SB) 331 : (2000) 250 ITR 1 (Chennai)(SB)(AT). 2 0 . learned Departmental Representative argued that during course of search proceedings no objection was taken, no representation was made by assessees against manner in which stock inventory was taken. There was no room for any error insofar as counting of number of bundles was concerned. assessees objection as to average weight per bundle was also frivolous because these stock inventories had not been prepared by search party on their own but on basis of information supplied by assessees own employees. As pointed out by learned CIT(A) assessee had provided scant information in stock registers. Apart from weight in kgs. nothing else was recorded. In these circumstances only proper course was to apply average weight. assessee could have carried out exercise o f average based on aggregate of all sale invoices if he so desired. assessee instead of bringing on record material in his defence and in support of his book results was merely criticizing methodology of search party, which in turn was based on assessees own bills. As matter of fact in explanations given assessee himself talked about average weight. AO worked out this average weight on basis of actual sale invoices. Under these circumstances it could not be said that stock inventory prepared during course of search was mere eye estimate. 2 1 . learned Departmental Representative argued that it was not correct to state that during course of search proceedings no corroborative material/evidence was found in support of excess stock physically found during course of search proceedings. In case of Smt. Anita Gupta unaccounted investments were found. These unexplained investments gave weight to findings of AO that assessee had been earning undisclosed income from its business of manufacturing iron and steel wires. learned Departmental Representative argued that version of assessee in relation to provisions of Chapter XIV-B was not correct. assessees counsel had conveniently overlooked amendment brought to provisions of chapter with retrospective effect from 1st July, 1 99 5. 2 2 . learned counsel for assessee in his rejoinder argued that management of assessees of this group was never party to physical inventory prepared by search party. search officers directed some of staff of assessee to joint them in slipshod exercise and later on directed them to sign inventories thus prepared. Those employees unaware of provisions of law and implications of exercise signed inventories because they were directed to do so. It was not correct that procedure adopted by search party in this behalf was not objected to till later stage of assessment proceedings. DDIT recorded statement of Shri Arun Kumar Gupta only in November, 2001 and at that point of time he objected to stock inventory elaborately. In spite of dissent and reservations recorded by assessee DDIT did not take any further steps. In other words he accepted objections of assessee to be correct. During course of search proceedings more than 800 bills were seized. AO only picked up 5-6 bills to arrive at average. These were matters over which assessee could have no control except recording his protest. 23. We have carefully considered rival submissions. legal position in this respect is firmly settled by now. While completing assessment AO is not Court. He is also not bound by technical rules of evidence. He may consider material which would be wholly inadmissible in Court of law. He may draw his conclusion and inferences on cumulative effect of various circumstances based upon test of human probability. At same time though technical rules of evidence do not apply, AO is bound by principles of natural justice. He cannot draw his inferences on basis of suspicion, conjectures and surmises. Suspicion howsoever strong, cannot take place of material in support of findings of AO. AO should act in judicial manner, proceed with judicial spirit and come to judicial conclusion, as held by Hon ble Allahabad High Court in case of Swadeshi Cotton Mills Co. Ltd. vs. ITO 1976 CTR (All) 6 : (1978) 112 ITR 1038 (All). While recognising that AO is not fettered by technical rules of evidence, Hon ble Supreme Court laid down as early as in case of Dhakeshwari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) that AO has to act fairly as reasonable person and not arbitrarily or capriciously. assessment based on no material at all or based on inadequate material is, therefore, bad in law liable to be set aside. Taking into consideration these parameters, we find that assessee in present case is manufacturer of iron and steel hardware. In his business he has to deal with goods in bulk at stage of procurement of raw material, at manufacturing process and at storage and sale of finished products. In instant case, assessee has maintained quantitative details of material thus, handled. learned CIT(A) has commented upon stock details not being kept by assessee quality-wise as well. Even if we ignore practical difficulties in maintenance of such details in business of iron and steel hardware, fact remains that assessee has kept quantitative details. During course of search proceedings search authorities have attempted to verify stock details kept by assessee by comparing stock as per books with inventory of physical stock taking during course of search. entire exercise in cases of about half dozen business concerns was commenced and completed within few hours. It does not require much imagination to arrive at enormous logistics required for undertaking task of reliable estimation of stock of kind of goods assessee dealt in. task involved was by any standards tedious, painstaking task requiring certain amount of patience and perseverance. It appears to us that search party had none of it. With view to remove botheration much simplified procedure was adopted. For justifying such procedure all emphasis is placed on factum of staff members of assessee-concerns having put their signatures on inventories prepared. We are unable to accept argument that these signatures have effect of rendering inventories into authentic documents. There is no material to suggest that employees concerned were properly authorized to certify quantity of stock of different kind physically present at premises of various concerns. It is also not clear that by placing their signatures on papers prepared by search party employees concerned were indeed verifying correctness and accuracy of contents thereof. There is no narration from them as to what for they were signing documents in question. least that was required was to obtain confirmation from directors of company about accuracy and correctness of stock taking done by search party. In these circumstances we have no option but to take these inventories as unilateral document prepared by search party on their own. That being so burden lies on Department to establish that stock taking had been done in fairly reasonable and satisfactory manner. learned CIT(A) has harped upon employees accompanying search party and their day-to-day knowledge and experience of dealing in such matters. In absence of no confirmation at all from employees as to what for they were signing documents, we are unable to attach such high degree of importance to their signatures obtained by search party. From facts and circumstances of case it is clear to us that manner in which stock taking has been done can hardly evoke any confidence. That being so finding of excess stock being found during course of search operation has been given by authorities below on grossly inadequate material. That finding cannot be sustained even under parameters of income-tax assessment proceedings not bound by technical rules of evidence. We, therefore, direct deletion of additions made by authorities below on alleged excess stock, shortage of stock physically found during course of search proceedings in all appeals before us. 24. We are now left with appeals filed by Shri Arun Kumar Gupta in his individual capacity and Smt. Anita Gupta. We have already dealt with additions of Rs. 58,982 made by AO in case of Shri Arun Kumar Gupta (HUF) and of Rs. 48,861 in case of Shri Arun Kumar Gupta (Indl.) on account of alleged commission received by them while dealing with allegation of commission in cases of various concerns of group as whole. Another issue in case of Shri Arun Kumar Gupta in individual capacity relates to addition of Rs. 53,69,260 made on account of loose papers. This aggregate addition has been made on basis of certain loose papers found during course of search. These loose papers were seized from residence of Shri Arun Kumar Gupta and were marked as Annex. A1. Page 6 of Annexure mentioned word "Bansalji" on top. Certain figures were mentioned on this document totalling at 1,79,550 from which 4,000 is subtracted and balance is struck at 1,75,550. assessee submitted to AO that this paper was not in his handwriting and it was rough slip and that he was not able to recollect entry. assessee further stated that paper did not belong to him. learned AO found that submissions of assessee were vague and general. As paper had been found from residence of assessee, onus was upon him under provisions of s. 132(4A) to prove transaction. In absence of explanation, learned AO treated figures as assessee s unexplained credits in Rupees and added same as undisclosed income for current period. 25. Pages 7, 10 and 11 contained certain cash transactions on some dates without mentioning year. word "A" is written in respect of several entries. According to learned AO this was code word to denote Arun Kumar Gupta. transactions were written in coded language. He asked assessee to explain transactions. Shri Gupta submitted that these papers did not belong to him and he was not able to recollect transactions. learned AO found that on p. 7 there was entry as follows : 60=60 Rokra babat DD Manipal dt. 19th July Shri Gupta in his statement stated that it could be DD charges for some demand drafts. learned AO noted that demand draft of Rs. 6,000 was taken from Canara Bank, Sadar Bazar, Delhi. With DD making charges of Rs. 60 it added up to Rs. 6,060. Thus figure of 6060 had been written as 60=60. On this basis learned AO interpreted figures as mentioned by him in tabular form at pp. 2 and 3 of block assessment order in case of Shri Arun Kumar Gupta. According to him, analysis of these transactions showed that there was one person Shri V.K. Jain, who was handling cash on regular basis. There were other persons, namely, Shri Ashok Daga and Shri Narander Jain through whom assessee was dealing in chits. assessee had made one demand draft for Rs. 6060 to be sent to Manipal. demand draft was made by Snehi Gupta, 69E, Kamla Nagar, Delhi. Shri A.K. Gupta was residing at E-69, Kamla Nagar, Delhi. same address had been given by assessee s wife Smt. Anita Gupta in her bank account with J&K Bank, Sadar Bazar and Canara Bank, Sadar Bazar. learned AO held that onus was on assessee to prove transactions as required under s. 132(4A). In absence of explanation from assessee, learned AO added up certain transactions on these papers aggregating to Rs. 34,73,710. He treated this amount as Shri Gupta s unexplained income and added back same in block assessment. 26. Page 8 is small slip titled as "Arun June". paper recorded certain transactions aggregating to 1300=00. AO held decoded total to be Rs. 1,30,000. assessee submitted that paper was not in his handwriting and he was not able to recollect nature of figures written on paper. He stated that slip did not belong to him. learned AO held that assessee was intentionally avoiding to explain paper. He, therefore, assessed sum of Rs. 1,30,000 as unexplained income of assessee. Page 9 is again small slip titled as "Arun Gupta" written on top of page. On this page certain figures totalling to Rs. 15,90,000 have been written as having been received on various dates. As per this paper assessee was having debit balance of Rs. 7,90,000 for month of June, 2001. This debit balance along with interest of Rs. 4 lakhs and another transaction of Rs. 1 lakh gave sum total of Rs. 12,90,000. According to learned AO, assessee made payments in June, 2001 totalling to Rs. 15,90,000 and thus, there was credit balance of Rs. 3 lakhs at end. assessee accepted that paper was found from car of assessee but stated that it was not in handwriting of assessee. assessee was not able to correlate and recollect nature of jottings on paper. According to AO, assessee failed to discharge his onus and assessed sum of Rs. 15,90,000 as undisclosed income of assessee. 27. During course of hearing before learned CIT(A) assessee argued that de-codification of figures mentioned on loose papers at pp. 7, 8, 10 and 11 and inferences drawn thereon were erroneous. assessee argued that loose papers did not belong to him and same were in nature of rough and dumb documents. They were not part of any books or records which could form basis of estimation of undisclosed income. In respect of page No. 6, assessee submitted that note was not in his handwriting. slip did not mention any date as well as nature of figures, whether same were Rupees or weight or whatever. Regarding pp. 7, 10 and 11, assessee argued that figures had been erroneously converted in thousands and lakhs by adding two digits on basis of some enquiry from bank. That enquiry did not reveal any direct connection of assessee with alleged demand draft. figures on loose papers did not specify whether same was amount of money or weight of goods or whatever. nature of figures was not clear. Regarding paper 8 assessee submitted that though name "Arun June" w s mentioned, assessee had nothing to do with document. Similar arguments were raised in respect of p. 9. In short assessee denied any connection with documents and argued that same were dumb documents. same were also not corroborated by any transaction or existence of any assets belonging to assessee. In support of his arguments assessee relied upon Tribunal decisions reported in Ganjam Nagappa & Son Trust vs. Director of IT (Exemption) (2004) 187 CTR (Kar) 311 : (2004) 269 ITR 59 (Kar); Atul Kumar Jain vs. Dy. CIT (1 99 9) 64 TTJ (Del) 786 and judgment of Hon ble Allahabad High Court reported in Pushkar Narain Sarraf vs. CIT (1 99 ) 86 CTR (All) 110 : (1 99 ) 183 ITR 388 (All). learned CIT(A) held that loose papers indicated that transactions belonged to assessee because Arunji/Bansalji appeared at various places. figures on pages were systematically written and totalled. Some pages were in same format as books of account, for example Rokara Haste and then name of party along with amount. Against some amounts words debit and credit had also been mentioned. assessee had simply tried to evade by saying that same were not in his handwriting. As loose papers were found at residence of assessee, learned CiT(A) held that onus was on assessee to explain entries. AO had even decoded entry at p. 7 "60=60" to be Rs. 6,060. AO had also found that address of person who got made demand draft viz., Snehi Gupta and residential address of assessee was same 69-E, Kamla Nagar, Delhi. learned CIT(A), therefore, held that these were not dumb documents. He further held that proviso to s. 158B(b) enabled AO to assess income based on any entry in books of account or other documents or transaction. burden that any undisclosed income found during course of search had already been disclosed in any return of income was upon assessee. Provisions of s. 132(4A) had also cast burden to explain on assessee. learned CIT(A) referred to decisions of Tribunal, Ahmedabad in case of Spectrum Construction Co. vs. Asstt. CIT (2001) 71 TTJ (Ahd) 749 : (2001) 77 ITD 153 (Ahd) that failure of assessee to rebut presumption raised under s. 132(4A) as well as under s. 110 of Indian Evidence Act was justification enough for invoking penal provisions of s. 271(1)(c). Even if presumption under s. 132(4A) was rebuttable assessee had not been able to explain entries. On this basis learned CIT(A) upheld additions made by AO on basis of loose papers. 28. During course of hearing before us learned counsel for assessee pointed out that these documents were found from motor car of assessee. assessee had been consistent in his submissions before Revenue authorities that said loose papers did not belong to him and same were in nature of dumb documents. During course of search proceedings also Shri Arun Kumar Gupta had denied having connection with seized papers. These statements were recorded on 2nd Nov., 2001 and 26th Nov., 2001 and Shri Arun Kumar Gupta categorically denied having any connection with seized papers. car in which papers were found was generally used by children of assessee, staff, guests, customers, suppliers and other parties. Hence presumption that papers belonged to assessee was not correct. learned counsel relied upon Tribunal decision reported in Ashwani Kumar vs. ITO (1 99 1) 42 TTJ (Del) 644 : (1 99 1) 39 ITD 183 (Del) to effect that in order to attract presumption under s. 132(4A) first requirement is that documents should be found in possession or control of assessee. In that case document was found inside shop of assessee and, therefore, it was held that slip was not in possession and control of assessee because everything physically present inside shop of person may not be in that person s control or possession. AO had also not been able to establish conclusively that loose papers belonged to assessee. assessee did not even know how papers came there. papers had not been found to have been written by assessee himself or by any of his family members or even by anybody having any connection with assessee. That was incontrovertible fact. On these facts papers could not be said to have been found in possession or control of assessee. Therefore, requirement for invoking provisions of s. 132(4A) was not satisfied. Furthermore, most of these papers were undated and did not bear name of assessee. No circumstantial evidence in form of any unaccounted cash, jewellery or investments outside books of account was found during course of search. 29. learned counsel argued that for purpose of block assessment, addition had to be related to cogent and positive material found during search proceedings that could prove conclusively that assessee had either earned income or made investment which had not been recorded in regular books of account maintained by assessee. additions could not be sustained merely on basis of rough noting made on some loose papers unless AO brought on record some independent and corroborative material t o prove that noting revealed undisclosed income or investment or expenditure of assessee. learned counsel referred to judgment of Hon ble Supreme Court in case of CBI vs. V.C. Shukla (1 99 8) 3 SCC 410, wherein Hon ble Supreme Court held that loose sheets of papers could not be considered as books and entries therein were inadmissible evidence and could not be relied upon. aforesaid judgment of Hon ble Supreme Court had been followed by Tribunal in case of Atul Kumar Jain vs. Dy. CIT (supra). 3 0 . learned counsel for assessee argued that none of presumptive provisions could be invoked. Sec. 68 could not be invoked because loose papers did not constitute books of account. Sec. 69 was not attracted because no investments were discovered from loose papers. Sec. 69A could not be invoked because assessee was not found to be owner of any unaccounted money, bullion, jewellery or other valuable article or thing. For same reason s. 69B did not apply. Sec. 69C did not apply because there was no evidence of any expenditure having been incurred. Sec. 69D did not apply because none of these documents represented any Hundi loans. learned counsel argued that in this view of matter additions based on loose papers was altogether beyond purview of Chapter XIV-B of Act. In support of these contentions learned counsel relied heavily upon decision of Tribunal, Delhi in case of Atul Kumar Jain vs. Dy. CIT (supra). 3 1 . learned counsel argued that these loose papers had recorded names of various persons other than assessee. During course of statement recorded on 2nd Nov., 2001 assessee offered to give addresses of some of them. However, no enquiry was made by AO from any of those persons. learned counsel referred to decision of Delhi Tribunal Pioneer Publicity Corpn. & Ors. vs. Dy. CIT (2000) 67 TTJ (Del) 471 wherein it was held that no addition could be made simply on basis of noting on visiting card found during course of search. learned counsel also referred to Tribunal decisions reported in Asstt. CIT vs. Sri Radheshyam Poddar (1 99 2) 41 ITD 449 (Cal), S.P. Goyal vs. Dy. CIT (2002) 77 TTJ (Mumbai)(TM) 1 : (2002) 82 ITD 85 (Mumbai)(TM), S.K. Gupta vs. Dy. CIT (1 99 9) 63 TTJ (Del) 532, (1 99 1) 42 TTJ (Del) 644 : (1 99 1) 39 ITD 183 (Del) (supra), Kantilal & Bros. vs. Asstt. CIT (1 99 5) 51 TTJ (Pune) 513 : (1 99 5) 52 ITD 412 (Pune), Satnam Singh Chhabra vs. Dy. CIT (2002) 74 TTJ (Lucknow) 976 and N.K. Malhan vs. Dy. CIT (2004) 91 TTJ (Del) 938. learned counsel enumerated many more decisions to support his contention that no addition can be made on basis of rough document in absence of any corroborative material. 32. Without prejudice, learned counsel argued that addition on basis of these loose papers could not be aggregate of all notings at Rs. 53,69,260. From many notings it was not clear whether figure represented receipt or payment. Many of these papers were undated and year of transaction was not mentioned at all. In case of N.K. Malhan vs. Dy. CIT (supra), Tribunal Delhi had held that if document did not state any date or year, it could not be held that document pertains to block period. Some of notings could be receipt of borrowed amounts and repayments. same could not be treated as undisclosed income. 33. As to demand draft to Manipal learned counsel argued that same was got made by one Snehi Gupta. said Snehi Gupta was not related to assessee in any manner. AO had also failed to establish any link between Snehi Gupta and assessee. He was not even known to assessee. If AO insisted that these papers pertained to purchase of draft by Snehi Gupta, obvious conclusion was that loose papers belonged to said Snehi Gupta and not assessee. It was pointed out that in case of Jaya S. Shetty vs. Asstt. CIT (supra), Tribunal held that presumption under s. 132(4A) did not permit figures written as paise to be interpreted as Rupees. Hence if AO relied upon provisions of s. 132(4A) he was required to accept amounts as recorded therein and not otherwise. Similar view was taken by Tribunal in decisions reported in (1 99 9) 64 TTJ (Del) 786 (supra) and (2000) 67 TTJ (Del) 471 (supra). It was also pointed out that while learned AO deciphered figures at pp. 7, 8, 10 and 11 by adding two digits, he had accepted figures at pp. 6 and 9 to be correct figures. That showed arbitrariness in approach of AO. 34. learned counsel for assessee further argued that in any case these documents called for no addition. Notings on loose paper 11 showed figures of payments aggregating to Rs. 6,500 by someone on different dates of June and upto July on behalf of one Shri V.K. Jain. Thereafter Shri V.K. Jain reimbursed amount of Rs. 6,500 on 3rd July. Again on p. 10, particulars of payments aggregating to Rs. 6,500 was shown on different dates. Finally Shri V.K. Jain reimbursed amount of Rs. 6,500 on 22nd June. As such for arguments sake without admitting, if assessee is said to be person who made payments, payments in question were received back on 22nd June and 3rd July, from Shri V.K. Jain. As such no undisclosed income could be computed in hands of assessee on basis of loose papers 10 and 11. Even otherwise, without prejudice to contention of assessee, even after adding two digits as done by AO, maximum addition that could be made was Rs. 7,04,635 only. flaw in approach of AO was that he aggregated amounts received as well as amounts paid; whereas same were required to be adjusted against each other. If that were done peak amount worked out to Rs. 7,11,135 plus Rs. 4,000. 3 5 . learned Departmental Representative argued that these loose papers were found from car belonging to assessee and, therefore, prima facie those papers were in control and possession of assessee. assessee had brought no material on record to indicate that these papers did not belong to assessee. In these circumstances provisions of s. 132(4A) applied and contents of documents were required to be considered to be true. learned Departmental Representative argued that it was not as if these loose papers did not indicate any connection with assessee whatsoever. Loose paper 9 clearly recorded name Arun Gupta, June, 2001 on top of document. It was thus apparent that these documents comprised of transactions of Shri Arun Gupta during month of June, 2001. Similarly word "Arunji" was mentioned on seized document No. 8 and word "Bansalji" was on seized document No. 6. There was thus internal evidence from documents that same pertained to transactions of assessee. In any case presumption under s. 132(4A) applied and assessee was answerable. In support of these contentions, learned Departmental Representative relied upon judgments reported in 181 ITR 333 (Ker) (sic). learned Departmental Representative argued that there was also ample reason to believe that demand draft of Rs. 6,060 related to assessee. Though demand draft was made by one Snehi Gupta, address given was E-69, Kamla Nagar, Delhi, where assessee was residing. Assessee s wife Smt. Anita Gupta had also given same address in her bank account with J&K Bank and Canara Bank. That clearly showed connection between draft sent to Manipal and assessee. These evidences clearly established that documents in question pertained to assessee and instead of explaining nature and transaction in documents, assessee was taking shelter under pretext that documents were found in car frequented by many others than by assessee himself. 36. We have carefully considered rival submissions. We see force in contention of assessee that there is no provision of law under which addition of Rs. 53,69,260 could be made to income declared by assessee. It is trite law that if income not admitted by assessee is to be assessed in hands of assessee, burden to establish that there is such income chargeable to tax is on AO. With view to assist AO and to reduce rigour of burden that lay upon AO, provisions of ss. 68, 69, 69A to 69D have provided for certain deeming provisions where assumption of income is raised in absence of satisfactory explanation from assessee. As these are deeming provisions condition precedent for invoking such provisions are required to be strictly construed. facts and circumstances giving rise to presumption have to be established with reasonable certainty. AO cannot first make certain conjectures and surmises and thereafter apply deeming provisions based on such conjectures and surmises. In absence o f adequate material as to nature and ownership of transaction, undisclosed income cannot be assessed in hands of assessee merely by arithmetically totalling various figures jotted down on loose documents. In other words for purpose of resorting to deeming provisions, dumb documents or documents with no certainty have no evidentiary value. In instant case learned counsel for assessee has summarized assessee s submissions as under : "(i) impugned seized papers are dumb documents having no evidentiary value. No addition can be made simply on basis of notings on loose papers in absence of corroborative materials. No circumstantial evidence in form of any unaccounted cash, jewellery or investment outside books was found in course of search. (ii) assessee, from very inception denied having any nexus with t h e seized papers. said papers were found from motor car of assessee which was used by children of appellant, staff, guests, customers, suppliers and other parties. As such, they cannot be said to have been found in t h e possession or control of assessee. Accordingly, assessee is not bound by presumption under s. 132(4A) in respect of these papers. (iii) impugned loose papers do not constitute books of account. Uncorroborated loose paper found in search cannot be taken as sole basis for determination of undisclosed income. (iv) Even otherwise, since said papers are unsigned entries therein are not sufficient to fasten liability on assessee. (v) Further, AO did not even bother to conduct further enquiry by summoning persons named in seized papers although assessee was ready to furnish their addresses. (vi) Without prejudice to above, in unlikely event that Your Honours decide that assessee is bound by presumption under s. 132(4A) and that said papers belong to assessee, even then undisclosed income emerging therefrom will not work out to Rs. 53,69,260. Page 6 of loose paper is undated. Pages 7, 8, 10 and 11 do not specify year. As such it cannot be deciphered therefrom whether entries pertain to block period. In absence of any specific mention in seized papers, onus strictly lies on Revenue to prove that notings therein pertain to block period. This onus has not been discharged. Under circumstances, maximum addition which can be made in hands of assessee will be Rs. 7 lakhs on basis of entries on p. 9 as discussed in para 4.7.3 supra. (vii) Without prejudice to point (vi) above, if Your Honours further decide that generalization as done by AO is acceptable and that entries on pp. 7 to 11 should be presumed to be pertaining to year 2001, maximum income which can be computed therefrom will be Rs. 7,15,135 as discussed in para 4.12 supra." After consideration of matter we find ourselves substantially in agreement with these contentions. Accordingly we hold that addition of Rs. 53,69,260 has been made by AO on grossly inadequate material. same is, therefore, directed to be deleted. 37. In case of Smt. Anita Gupta, assessee has disputed addition of Rs. 3 lakhs made by way of unexplained expenditure in construction of house. According to learned AO during course of search proceedings cost of construction was estimated at Rs. 72 lakhs. assessee could explain sources of investment upto Rs. 60 lakhs and offered balance amount of Rs. 12 lakhs for taxation as undisclosed income. However, in return of income assessee disclosed unexplained expenditure at Rs. 9 lakhs only. assessee did not submit any explanation for balance amount of Rs. 3 lakhs. During course of proceedings under s. 158BC, learned AO asked assessee to explain as to why remaining sum of Rs. 3 lakhs should not be assessed as undisclosed income of block period. assessee submitted that during course of post-search investigation total drawings from Bansal Wires was mistakenly taken at Rs. 6,50,000 instead of Rs. 8 lakhs. Besides her husband s contribution from individual account and HUF account aggregating to Rs. 1,24,000 was also not taken into account while estimating difference of Rs. 12 lakhs. Therefore, income was declared at Rs. 9 lakhs instead of Rs. 12 lakhs. learned AO found this explanation to be unsatisfactory. assessee had shown household expenses at Rs. 19,100 only. Total monthly drawings of assessee and her husband was Rs. 15,000 only. drawings in these accounts were in nature of household expenses rather than drawings for purpose of construction of house. He, therefore, rejected assessee s explanation in relation to balance of (rupees) three lakhs and made addition of Rs. 3 lakhs in block assessment. On assessee s appeal learned CIT(A) has concurred with reasoning of AO. 38. During course of hearing before us learned counsel for assessee argued that addition of sum of Rs. 3 lakhs was totally outside scope of provisions of s. 158BC. During course of search no material was found pointing out to any undisclosed expenditure in construction of house. Nor any enquiry in that respect was conducted. question of investment in construction of house was raised in statement recorded under s. 131 of assessee s husband on 26th Nov., 2001 long after conclusion of search under s. 132. In that statement assessee s husband offered additional income of Rs. 12 lakhs on this account. However, while preparing block return it was found that cost of construction to extent of Rs. 63 lakhs was duly reflected in books of account. Hence additional income was admitted at Rs. 9 lakhs only. At any rate, this issue had absolutely no link with search under s. 132 and there was not iota of material found indicating any unexplained expenditure on construction of house by assessee. Hence this addition was required to be deleted at threshold itself as beyond scope and ambit of provisions of s. 158BC. On consideration of matter we find that this contention of assessee is correct. We have discussed legal position in this behalf at length in this order while considering additions made in cases of various assessees in respect of alleged unexplained commission paid to Shri V.P. Jain. There is direct authority of Hon ble Delhi High Court in case of Ravi Kant Jain (supra) that in order under s. 158BC only that undisclosed income can be assessed which is unearthed as result of search. We, therefore, delete addition of Rs. 3 lakhs made by AO in absence of search proceedings carried out at premises of assessee having any bearing on this issue. 39. Besides in case of Smt. Anita Gupta dispute has been raised in relation to addition of Rs. 2,34,487 made by AO as unexplained investment in household goods. According to AO during search operation luxury items such as 9 air-conditioners of various makes and models, three colour televisions, fridge, DVD players, home theatre systems, etc. of expensive brands were found. assessee was asked to explain source of these items. In reply dt. 15th Dec., 2003 assessee submitted that while estimating total investments of Rs. 72 lakhs in relation to construction of house, cost of acquisition of these items had also been included. assessee submitted that cost of furniture, household valuables, air-conditioners, etc. was Rs. 1,25,513 only. learned AO held that assessee had not furnished any explanation or supporting evidence while declaring total cost at Rs. 1,25,513 only. As per inventory prepared cost of 9 air-conditioners was Rs. 2,10,000. cost of other items such as colour televisions, fridge, DVD players, home theatre systems, etc. was also not less than Rs. 1,50,000. All these items were of expenses variety. learned AO, therefore, estimated total expenditure at Rs. 3,60,000 as against Rs. 1,25,513 admitted by assessee. Accordingly he made addition of Rs. 2,34,487 in block assessment of Smt. Anita Gupta. On assessee s appeal learned CIT(A) concurred with view taken by AO. 40. During course of hearing before us learned counsel for assessee argued that here again addition was outside scope of provisions of Chapter XIV-B. During course of search not iota of incriminating material was found indicating any unaccounted for expenditure in acquisition of these articles. No material was found that cost of these items was more than amount estimated by assessee. entire addition had been made by AO on basis of pure estimate for which no particular material was relied upon. In block assessment under Chapter XIV-B, there was no scope for such additions made on estimate based on conjectures and surmises. On consideration of matter, we do not agree with these contentions of learned counsel for assessee. If during course of search, person is found to be living beyond his known sources of income, it cannot be said that no material is found during course of search. air- conditioners, colour TVs, refrigerators, etc. were found during course of search and it was also found that drawings disclosed by assessee from time to time did not reflect acquisition of these items by assessee. Thus, factum of unexplained expenditure finds its root in search carried out at residential premises of assessee. assessee has herself admitted unexplained expenditure of Rs. 1,25,513. We also do not accept contentions of learned counsel for assessee that estimate of total investments at Rs. 3,60,000 has been made by AO on pure estimate. No material has been relied upon by assessee in first instance in support of her contention that total cost involved was Rs. 1,25,513. No particulars of date of acquisition and party from whom (same were) acquired have been furnished. Under these circumstances, AO was left with no other option but to make fair and reasonable estimate. In our opinion, estimate of Rs. 3,60,000 for 9 air- conditioners, three colour televisions, refrigerators, DVD players, home theatre systems, etc. of high quality cannot be said to be unreasonable. We, therefore, uphold addition of Rs. 2,34,487 as made by learned AO. 41. In result, appeal filed in case of Smt. Anita Gupta shall be treated as partly allowed. appeals filed by all other assessees shall be treated as allowed. *** BANSAL STRIPS (P) LTD. & ORS. v. ASSISTANT COMMISSIONER OF INCOME TAX
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