N.L. KALRA, A.M.: ORDER assessee has filed this appeal against order of AO dt. 24th April, 1997. 2. first ground of appeal is general and will stand disposed of in view of findings to be recorded against other grounds of appeal. 3. second ground of appeal is that order passed by AO is barred by limitation. warrant of authorization was executed on 6th Feb., 1996 and hence assessment was to be completed on or before 28th Feb., 1997 as per s. 158BE of IT Act. 4 . learned Authorised Representative drew our attention to Panchnama dt. 6th Feb., 1996 (available at pp. 1 to 13 of paper book). As per this Panchnama, search was commenced on 6th Feb., 1996 and prohibitory order under s. 132(3) was placed. Thereafter our attention was drawn to Panchnama dt. 19th Feb., 1996 (available at pp. 14 to 18 of paper book). As per this Panchnama, search was concluded on 19th Feb., 1996. No prohibitory order was placed. Our attention was drawn to third Panchnama dt. 25th April, 1996 (available at pp. 19 to 23 of paper book). 5 . learned Authorised Representative submitted that as per Panchnama dt. 25th April, 1996, nothing was found or seized. No prohibitory order was placed. Search commenced at 4 PM and concluded at 5 PM. learned Authorised Representative submitted that it was mere formality. Panchnama dt. 25th April, 1996 is not valid Panchnama. learned Authorised Representative stated that col. 9 of Panchnama dt. 19th Feb., 1996 is blank and it means that search was concluded on 19th Feb., 1996. Accordingly assessment should have been completed on or before 28th Feb., 1997. 6. learned Authorised Representative relied on order of this Bench in case of Madhuvana House Building Co-operative Society vs. Asstt. CIT. This Bench vide order dt. 31st Dec., 2001 in IT(SS)A No. 175/Bang/1997 [reported at (2002) 76 TTJ (Bang) 948 Ed.] held that search cannot be said to have been completed on day of last Panchnama, if there has been no search and seizure on day of last Panchnama. In that case, on day when last Panchnama was drawn, there was no search and there was no seizure of material kept under P.O. Under these circumstances, it was held that search cannot be said to be completed on last day when last Panchnama was drawn but it was held that search stood completed before that. 7 . learned Authorised Representative relied on decision of Allahabad High Court in case of Sriram Jaiswal vs. Union of India & Ors. (1989) 75 CTR (All) 41 : (1989) 176 ITR 261 (All) in which it has been held that order under s. 132(3) does not amount to seizure. It was further held by learned Allahabad High Court that condition precedent to make attachment order under s. 132(3) is that undisclosed assets are discovered during search. In instant case, Panchnama dt. 25th April, 1996 shows that no asset was seized. Hence it is clear that search stood concluded by Panchnama dt. 19th Feb., 1996. 8 . learned Authorised Representative also relied on decision of Special Bench in case of Promain Ltd. vs. Dy. CIT (2005) 95 TTJ (Del)(SB) 825 : (2005) 95 ITD 489 (Del)(SB). In that case at para 75, it has been mentioned that AO must satisfy himself for purpose of calculating period of limitation that document in question is in reality Panchnama. In case, restraint order is placed under 2nd proviso to s. 132(1), then it amounts to seizure and lifting of restraint order will not be relevant. learned Authorised Representative drew our attention to para 76 of order of Special Bench. In case there is prohibitory order then search could be concluded when prohibitory order is lifted and books of account/valuable articles are actually seized and Panchnama is prepared. From this learned Authorised Representative conferred that in order to be Panchnama, there must be some search and seizure. In instant case, learned Authorised Representative stated that vide Panchnama dt. 19th Feb., 1996, no prohibitory order under s. 132(3) was placed. Hence that should be treated last Panchnama. 9 . learned Authorised Representative also relied on decision of Bombay High Court in case of CIT vs. Mrs. Sandhya P. Naik (2002) 178 CTR (Bom) 448 : (2002) 253 ITR 534 (Bom). In this case, search warrant was executed between 16th Oct., 1996 and 20th Oct., 1996. On 20th Oct., 1996, order under s. 132(3) was passed covering one cupboard in which all silver articles found were placed and sealed. On 26th Oct., 1996, 6 kg. of silver vessels were released and cupboard was sealed again. On same day, Panchnama was drawn concluding search and indicating in said Panchnama that cupboard containing silver articles had been sealed. On 13th Oct., 1997, Asstt. CIT Shri Ashish Abrol who was not one of authorized officers removed seal and made further order under s. 132(3) of IT Act, releasing said silver articles. Assessment was completed on 13th Dec., 1997. learned High Court upheld finding of Tribunal that there was no practical impediment to seizure of 45 kg. of silver. It was further held that Tribunal was right in holding that proceedings on 26th Oct., 1996 could not be considered as part of execution of search proceedings. Explanation to s. 132(3) says that restraint order does not amount to seizure. Mr. Abrol was not authorised officer. Validity of Panchnama is to be looked as per provisions of Criminal Procedure Code. In circumstances learned High Court held that impugned assessment dt. 31st Dec., 1997 is barred by limitation. 10. learned senior counsel appearing for Revenue stated that s. 132 can be split into two compartments. Sub-ss. (1) to (5) of this section relate to conducting of search. Search operations are administrative matter and these cannot be looked into by Tribunal. AO is handed over search material and appraisal report. warrant of authorisation and satisfaction note is not handed over. There may be procedural errors in Panchnama. learned senior counsel stated that when these Panchnamas were drawn, Explanation to s. 158BE was not in statute book. 11. learned senior counsel drew our attention to Panchnama dt. 6th Feb., 1996. As per col. 9 of this Panchnama it is clear that two prohibitory orders under s. 132(3) were placed. In col. 8, it was mentioned that search is temporarily concluded. Thereafter he drew our attention to p. 18 of paper book filed by Department. learned senior counsel stated that on top of this page it is written as under : "Statement of Shri D.T.S. Rao, director, M.H.B.C.S., Mysore under s. 132(4) continued on 23rd April, 1996." 12, From this, learned Departmental Representative stated that search continued upto 23rd April, 1996. Hence, it cannot be said that search was concluded on 19th Feb., 1996. 13. learned senior counsel referred to p. 15A of paper book filed by learned Authorised Representative. According to it, prohibitory order in case of cupboard was lifted on 19th Feb., 1996, second prohibitory order was not lifted. learned senior counsel stated that date mentioned in col. 2 of Panchnama dt. 25th April, 1996 (p. 19 of paper book of learned Authorised Representative) is correct. If there is error then same is covered under s. 292B of IT Act. Hence, it was argued that last Panchnama is dt. 25th April, 1996 and accordingly assessment has been completed within time allowable under Act. 14. learned senior counsel drew our attention to s. 132(8A) as existing at that relevant time. According to it prohibitory order under s. 132(3) shall not be in force for period exceeding sixty days from date of search except where such period is extended beyond 60 days on basis of reasons recorded and taking approval of Director or CIT. Hence, prohibitory order which was passed on 6th Feb., 1996 was valid till 6th April, 1996 and hence such date should be reckoned as date for conclusion of search. learned senior counsel, then stated that assessment order passed is within limitation period on account of consideration of any of following dates : (a) Last Panchnama drawn on 25th April, 1996. (b) Statement of Shri Rao recorded under s. 132(4) on 23rd April, 1996. (c) Date of expiration of P.O. i.e. 6th April, 1996. 15. learned senior counsel then submitted that limitation is provided under s. 158BE. period is to be reckoned from last day of month in which authorization under s. 132 is executed. Such execution may be through either s. 132(3) or 132(4). Explanation 2 to s. 158BE is for removal of doubts. Sec. 158BE(1) does not refer to Panchnama. Hence date on which statement under s. 132(4) has been recorded is relevant. 16. learned Authorised Representative in his counter-reply admitted that there were two prohibitory orders as per Panchnama dt. 6th Feb., 1996. 17. We have heard both parties. Special Bench in case of Promain Ltd. (supra) has clarified issues on which Tribunal has jurisdiction to call for records in order to decide issue before it. It will be relevant to reproduce relevant extract from p. 498 of 95 ITD : "As already discussed, search action under s. 132 has three limbs i.e., initiation of search, conduct of search and conclusion of search. Insofar as validity of search is concerned, first limb, i.e., initiation of search, which includes all action culminating into issue of warrant of authorization, assumes significance and relevance and same are not justiciable in appeal before Tribunal. only remedy in matter lies in form of seeking issue of writ from High Court. As regards remaining two limbs, i.e. conduct of search and conclusion of search anomalies and infirmities therein, if any, do not get to vitiate search action and Tribunal can look into these aspects to extent relevant for disposing of appeal against block assessment. Tribunal also has power to call for production of warrant of authorization and other documentary evidence with view to find out date of last Panchnama and to ascertain search in fact was initiated and conducted in given case to verify jurisdictional fact, if so challenged by assessee and if so thought fit by Tribunal in facts and circumstances of case." 18. In instant case, assessee has challenged that assessment order has been passed beyond time-limit as provided under Act. 1 9 . Time-limit for completion of block assessment is provided under s. 158BE(1) of IT Act. assessment is to be completed within one year from end of month in which last of authorizations under s. 132 is executed. It is true that s. 158BE does not refer to any sub-section of s. 132. perusal of provisions of s. 132 shows that authorization is issued under sub-s. (1) or (1A) of s. 132. Sub-ss. (2) to (4) of 132 deal with powers of authorized officer. Hence, authorization as referred in s. 158BE means authorization as issued under s. 132(1) or 132(1A). 20. Word executed was not originally defined. However, Expln. 2 to s. 158BE was introduced by Finance (No. 2) Act, 1998 with retrospective effect from 1st July, 1995. Expln. 2 is as under : "For removal of doubts, it is hereby declared that authorization as referred in sub-s. (1) shall be deemed to have been executed, in case of search, on conclusion of search as recorded in last Panchnama drawn in relation to any person in whose case, warrant of authorization has been issued." 2 1 . CBDT vide Circular No. 772, dt. 23rd Dec., 1998 clarified position as to why Explanation was introduced. In para 53.2 of that circular it was mentioned : "To settle controversy regarding meaning of word execution while calculating period of limitation in s. 158BE of IT Act, Act has inserted new clarificatory Explanation. authorization is deemed to have been executed in case of search on conclusion of search as recorded in last Panchnama drawn in relation to any person in whose case warrant of authorization has been issued." 2 2 . Thus, it is clear that Explanation is clarificatory and has been introduced to settle controversy. If Explanation is clarificatory in nature and has retrospective effect then Explanation so brought in statute simply explains law as it has always been in main provision. 23. Explanation was introduced to s. 194A. learned Madras High Court in case of ITO vs. D. Manoharlal Kothari (1999) 155 CTR (Mad) 619 : (1999) 236 ITR 357 (Mad) observed at p. 374 : "From what is expressed by apex Court, Explanation cannot be treated as amendment because purpose of Explanation is to explain or, in words of apex Court, to clear any mental cobwebs surrounding meaning of statutory provision and to prevent controversial interpretations without giving true meaning of provision. That is why apex Court further emphasized by saying that such Explanations were intended more as legislative exposition or clarification of existing law than as change in it. When Explanation serves purpose of clarification of existing law, th e r e is no question of any prospective or retrospective operation of Explanation. Hence, in this case, in year 1987, legislature has expressed intention or scope of s. 194A of Act by making it clear that even suspense account or interest payable account has to be deemed only as account with credit entries." 24. learned Rajasthan High Court in case of Laxmi Industries Ltd. Co. & Ors. vs. ITO (1997) 142 CTR (Jp) 436 : (1998) 231 ITR 514 (Jp) observed at p. 517 : "An Explanation brought on statute book is ordinarily clarificatory in nature and has retrospective effect, as Explanation so brought to provision in statute simply explains law as it has always been in main provision. in statute simply explains law as it has always been in main provision. However rule governing construction of provisions imposing penal liability upon subject is that such provisions should be strictly construed. When provision creates some penal liability against subject, such provision should ordinarily be interpreted strictly. That apart, if two views of interpretation or construction of provision in statute are reasonably possible, view which is favourable to subject should be adopted." 25. In this case, learned High Court held that assessee was liable to deduct tax at source credited in suspense account though Explanation was introduced subsequently for deduction of tax at source in case interest is credited in suspense account. Hence, provision was strictly construed in accordance with Explanation. learned Calcutta High Court in case of CIT vs. Sri Jagannath Steel Corporation (1991) 191 ITR 676 (Cal) held that amendment which is clarificatory has to be construed retrospectively. 26. Explanation 8 to s. 43(1) was introduced by Finance Act, 1986 with retrospective effect from 1st April, 1974. It declared that it is for removal of doubts. learned Calcutta High Court in case of CIT vs. India Steamship Co. Ltd. (1992) 196 ITR 917 (Cal) observed at p. 936 as under : "It is no doubt true that, ordinarily, statute, and particularly when same has been made applicable with effect from particular date should be construed prospectively and not retrospectively. But this principle will not be applicable in case where provision construed is merely explanatory, clarificatory or declaratory. It cannot be disputed that object of Explanation is to explain meaning and intendment of Act itself." 2 7 . Thus, it is clear that execution of warrant of authorization under s. 132(1) is to be seen in accordance with Expln. 2. 28. In view of Expln. 2 to s. 158BE, execution of search warrant is to be inferred from date recorded in respect of conclusion of search in last Panchnama. Panchnama is not defined in IT Act. However, s. 100 of CrPC governs conducting of search. As per 100(4) of CrPC, authorized officer to make search is required to call upon two or more independent and respectable inhabitants of locality in which place to be searched is situated. Search is to be made in presence of these two respectable inhabitants; list of things to be seized and placed where these have been found is to be prepared and such list is to be signed by authorized officer and two witnesses. Copy of list prepared is to be delivered to occupant of premises. Recording of names of officer authorized to search, building or premises to be searched, designation of officer who authorized search, name and addresses of two respectable persons called to witness search, time of commencement of search and conclusion or suspension of search, list of valuables, documents etc. found as well as seized, recording of statement of any person during search and mention of any restraint order or prohibitory order, are recorded in prescribed format and such document is known as Panchnama. Panchnama is prepared even if search is temporarily suspended. Panchnama is definitely prepared at conclusion of search. In case order under s. 132(3) is passed, then same is mentioned in Panchnama. Normally order under s. 132(3) is passed in respect of room, shop, office or almirah or lockers etc. Such room, locker or almirah etc. is sealed. Prohibitory order under s. 132(3) is in respect of specific portion of area or space which can be sealed and to which legal access of entry cannot be made except with knowledge of authorized officer. When such sealed room, almirah etc. is opened again then same is also done in presence of two witnesses. Such proceedings are also recorded in Panchnama at conclusion and if prohibitory order is again to be passed then same is mentioned in Panchnama. When prohibitory order under s. 132(3) is finally lifted then Panchnama is drawn. 29. In instant case, as per Panchnama dt. 6th Feb., 1996 shows that search was temporarily concluded at 5 AM on 7th Feb., 1996. List of documents, valuables found and seized were also prepared. Statement of Shri D.S. Manjunath recorded during search. Prohibitory order under s. 132(3) passed in respect of following : (a) Steel almirah kept in ground floor (b) One cupboard in wardrobe of first floor of house No. 23, Palace Model House, Mysore. 30. Copy of order under s. 132(3) available at p. 15A of paper book filed by assessee shows that personal jewellery, pawned jewellery, diary and loose papers were kept in cupboard in bedroom of Shri D.S. Manjunath S/o D.T.S. Rao, 23, Palace Mode House, Mysore. This prohibitory order was lifted on 19th Feb., 1996 and Panchnama was drawn on 19th Feb., 1996. Vide this Panchnama no further prohibitory order was passed. 3 1 . Then, last Panchnama is dt. 24th April, 1996. As per this Panchnama, nothing has been found or seized. Col. 5 of Panchnama has been struck off. Col. 5 of Panchnama requires following details to be given : a. Books of account or valuables found and seized b. Books of account or valuables found but not seized. 32. However, annexures have been attached to Panchnama dt. 25th April, 1996. In annexures, it has been mentioned : Date of search 6-2-1996 33. These details suggest that this Panchnama is in respect of prohibitory order placed on 6th Feb., 1996 in respect of almirah. Though Department has filed copy of order under s. 132(3) in respect of cupboard on first floor but no copy of order under s. 132(3) filed in respect of almirah. 34. Sec. 132(8A) as existing at that time was as under : "An order under s. 132(3) shall not be in force for period exceeding sixty days from date of order, except where authorized officer, for reasons to be recorded by him in writing extends period of operation of order beyond sixty days after obtaining approval of Director or, as case may be CIT for such extension." 35. Prohibitory order under s. 132(3) was passed on 6th Feb., 1996 and in case it continued upto 25th April, 1996 then such order was required to be extended as per s. 132(8A) after recording reasons and getting such extension approved from competent authority. learned Authorised Representative has stated that assessee was neither given copy of prohibitory order dt. 6th Feb., 1996, if any, in respect of almirah nor any intimation given for its extension. 36. It is necessary for Revenue authorities to communicate such extension to assessee as s. 275A states that any person who contravenes order under s. 132(3) is punishable with rigorous imprisonment. In view of facts as placed before us, it is held that prohibitory order was not valid as on 25th April, 1996. 37. Panchnama is not defined under IT Act. However, Board has issued tax-payer s charter. In respect of charter of rights and duties of persons searched, Board has mentioned that such person has right to have copy of Panchnama together with all annexure. Duty of person searched is to affix his signature on recorded statement, inventories and Panchnama. Rule 112 of IT Rules provides procedure to be followed in search. Combined reading of r. 112 and taxpayer s charter makes it clear that Panchnama referred in Expln. 2 to s. 158BE is that Panchnama copy of which is given to party searched. In instant case, there are three Panchnamas dt. 6th Feb., 1996, 19th Feb., 1996 and 25th April, 1996. As stated earlier, order under s. 132(3) was not valid on 25th April, 1996. When order under s. 132(3) was not extended beyond sixty days then lifting of such prohibitory order vide Panchnama dt. 24th April, 1996 has no legal sanction, when violation of order under s. 132(3) can result into punishment with rigorous imprisonment then, communication of extension of order under s. 132(3) is must. Hence, Panchnama dt. 25th April, 1996 is not valid Panchnama. 38. Search comes to end when last Panchnama is drawn. It is date of such Panchnama which is relevant for determining period of limitation for passing order under s. 158BC by AO. Accordingly, AO is required only to find out date when last Panchnama with reference to last authorisation is drawn and nothing beyond that. Hence, Tribunal can examine date when last Panchnama was drawn. It will be relevant to quote from p. 51 in case of Promain Ltd. vs. Dy. CIT (supra) : "It is, however, pertinent to mention about significance of Panchnama. Panchnama is document which is prepared in presence of Panchas (respectable local witnesses) containing items found and seized i n course of search. So AO must satisfy himself for purpose of calculating period of limitation that document in question is in reality Panchnama. There may be case where inventory is prepared in respect of books of account or valuable articles found in course of search but taking of o r removal of such books of account or valuable article is not practicable. authorized officer may issue restraint order under proviso to s. 132(1). Such restraint is deemed to be seizure as per said proviso. Hence, in such case, preparation of inventory and Panchnama would be relevant and any action of authorized officer lifting restraint order would, in our opinion, be irrelevant. reason is that whatever search partly was required in law to do had been done and nothing more was required. restraint order is passed not because anything was to be done but because it was not practicable to take physical possession and remove material to safe place at relevant time. As held by Hon ble Bombay High Court in case of CIT vs. Mrs. Sandhya P. Naik (2002) 178 CTR (Bom) 448 : (2002) 253 ITR 534 (Bom), authorized officer cannot keep search proceedings in operation by passing restraint order under s. 132(3) so as to circumvent provisions of s. 132(3) r/w s. 132(5). However, situation would be different where prohibitory order under s. 132(3) is issued because such order, unlike restraint order, does not amount to seizure as per sub-s. (3) of s. 132. Such orders are issued where it is not practicable to seize. So act of seizure remain to be performed and, therefore, search cannot be said to be concluded. Hence, in such case, search would be concluded when prohibitory order is lifted and books of account/valuable articles are actually seized and Panchnama is prepared. In such case, it is this Panchnama (if it is last one) which is relevant for calculating period of limitation. Accordingly, we hold that Tribunal can examine record of search with view to find out factum of last Panchnama as discussed above." 39. Perusal of Panchnama dt. 25th April, 1996 shows that prohibitory order was lifted. Items which were earlier found have been inventorised. Panchnama dt. 25th April, 1996 means that Shri D. Padmanabha, ITO is authorized officer. However his name is not appearing as authorized officer in Panchnama dt. 7th Feb., 1996. officer is authorized to participate for search as per warrant of authorization. Hence, name of Shri Padmanabha as authorized officer also viatiates Panchnama dt. 25th April, 1996. 40. During course of proceedings before us, learned Departmental Representative has filed copy of appraisal report along with annexure. At p. 3 of such report, it is mentioned that limitation for assessment in case of Shri D.T.S. Rao is 28th Feb., 1997. It means, Department was of opinion that assessment is to be passed on or before 28th Feb., 1997. 41. In view of fact that Panchnama dt. 25th April, 1996 is not valid, then last Panchnama is dt. 19th Feb., 1996 vide which certain books of account and documents were seized. Therefore, it is last Panchnama and according to it, assessment order should have been passed on or before 28th Feb., 1997. 42. This Bench, in case of Madhuvana House Building Co-operative Society vs. Asstt. CIT (supra), held vide para 12 that Panchnama dt. 25th April, 1996, was not date of last Panchnama, as there was no search or seizure. In that assessment order was held as barred by limitation. 43. During course of proceedings, learned senior counsel argued that statement of late Shri D.T.S. Rao was recorded under s. 132(4) on 23rd April, 1996 and, therefore, it will be considered that search continued upto 23rd April, 1996. Sec. 132(4) authorizes AO to examine, on oath in person during course of search or seizure. Mere mention of section on top of statement will not make statement as recorded during course of search. At top of statement, it is written as under : "Statement of Shri D.T.S. Rao, director, M.H.B.C.S., Mysore under s. 132(4) continued on 23rd April, 1996." 44. Before this stage, statement was recorded on 6th March, 1996 and at end of statement it was mentioned that it is temporarily concluded. Hence, this statement on 23rd April, 1996 was in continuation of statement recorded on 5th March, 1996. Statement recorded on 5th April, 1996 is in continuation of statement dt. 24th Feb., 1996. In statement recorded on 7th Feb., 1996, it is clearly mentioned that same has been recorded during course of proceedings under s. 132 of Act. It will be relevant to mention that statement dt. 23rd April, 1996, 5th March, 1996 and 24th Feb., 1996 do not contain signature of witnesses. Statement on 24th Feb., 1996 was continuation of statement dt. 7th Feb., 1996. Statement on 24th Feb., 1996 has been recorded by Shri Padmanabha and his name has not appeared as authorized officer in Panchnama dt. 6th Feb., 1996. Therefore statement dt. 24th Feb., 1996 is not statement recorded by authorized officer. Similarly, statement of 23rd April, 1996 is also by Shri Padmanabha, his name is not appearing as authorized officer in Panchnama dt. 6th Feb., 1996. It means that he was not authorized officer. Hence, statement dt. 23rd April, 1996 cannot be termed as statement recorded during course of search proceedings by authorized officer. Moreover, limitation is to be reckoned from date of last Panchnama and not from date on which statement has been recorded. If statement is recorded during course of search, then mention of such recording of statement is to be given in para 6 of Panchnama. Unless that mention is available in Panchnama, statement cannot be statement during course of search. Hence, we do not agree to contention of learned senior counsel that assessment order is within time as there is statement of late Shri Rao on 23rd April, 1996. 4 5 . learned senior counsel also argued that prohibitory order was placed on 7th Feb., 1996. Such prohibitory order should have been continued for period of 60 days without approval of Director or CIT. It was therefore argued that such prohibitory order continued upto 6th April, 1996. limitation period reckoned from end of month in which prohibitory order expired i.e. April, 1996. It was therefore submitted that order passed is within limitation. 4 6 . It is assumed that prohibitory order stood lifted on 7th April, 1996. However no Panchnama has been drawn. As per Expln. 2 to s. 158BE, it is only last Panchnama which is to be seen for purpose of determining limitation of passing assessment order. As per facts on record last Panchnama is dt. 19th Feb., 1996, as there is no seizure vide Panchnama dt. 25th April, 1996 besides fact that Panchnama dt. 25th April, 1996 is not valid Panchnama. Hence, it is held that order passed by AO is barred by limitation. 4 7 . Ground of appeal Nos. 3 and 4 are against addition of Rs. 1,37,00,502 as alleged gross receipts received by assessee or his family members. Alternately it has been mentioned that AO should have taxed only income attributable to gross receipts. 48. Late Shri T.D.S. Rao was one of promoters of M/s Madhuvana House Building Co-op. Society (hereinafter referred to as M.H.B.C.S.) and occupied various positions in managing committee of society. M/s M.H.B.C.S. was formed in 1974 and from 1985, it became active. Late Shri Rao is also president of Saradavilas Educational Society from 1991 onwards. During t h e course of search at premises of brother of Smt. Gayathri, manager, M.H.B.C.S. certain documents were seized and these documents showed that amounts drawn were utilized by late Shri Rao and his family members for their personal purposes and also for advancing their position in society. Smt. Gayathri was trusted employee of M.H.B.C.S. and used to collect money and maintained books of account. Smt. Gayathri recognized documents written in her handwriting and stated period to which such document belongs. She stated that sometimes contractors handed over certain funds to be disbursed or to be spent in particular way. For such expenses, contractors subsequently gave vouchers under their signature specifying nature of expenditure to be debited. society records do not indicate actual nature of disbursement or expenditure as recorded in loose sheets maintained by Smt. Gayathri. Such sums appeared as advance to contractors such system of recording entries in regular books was adopted as per directions of management, which included 15 directors out of which Shri D.T.S. Rao was executive director and Shri Ramesh Rao was authorized director. There were following three projects : (i) Srirampura Layout-51.35 acres Contractor M/s S.G.R. Enterprises allotment of site complete. (ii) Sathagalli Layout-74.12 acres Contractor M. Ramachandrachar. Land acquired by Government and possession given by Government. Provisional allotment made, civil works is still to commence. (iii) Dattagalli-132 acres Contractors M/s Raghavender Constructions. 4(1) notification subsequently cancelled and in lieu of that NOC issued for Srirampura III Stage. Works which were to be executed by contractor : (a) Securing from Government permission and approval for acquisition of lands in favour of first party. (b) Processing matters with relevant authorities and securing possession of lands in favour of society. (c) Sanction of layout plan from relevant authorities. (d) To carry out civil portion of layout work after getting permission. (e) Laying of lines for water supply, underground drainage system, street lights, asphalting after completion of civil work. 49. Above referred entire work was to be done by contractors and payments were to be made by society. AO stated that most of work has been executed by directors and their family members. This is evident from fact that funds have either been drawn by bearer cheque in name of contractor or in names of directors and employees of society. AO collected information from encashed cheques and vouchers on sample basis and found that 97 cheques of dates from 28th Dec., 1986 to 4th Jan., 1995 have been encashed by (i) Ramesh, (ii) Manjunath, (iii) Varija Kumari, (iv) D.T. Prakash, (v) D.T.S. Rao, (vi) Srinivas Rao, (vii) Gayathri. 50. From this AO concluded that there is diversion of funds of society by directors and their family members at instance of assessee. contractors stated that they gave blank vouchers and some blank vouchers were found at residence occupied by brother of Smt. Gayathri. Shri M. Ramachandran and Shri N. Shankar, partner of M/s Raghavendra constructions and M/s S.G.R. Enterprises stated that Shri D.T.S. Rao obtained blank vouchers from them and they are not aware as to how such vouchers have been utilized by Shri Rao. Shri Ramachandra stated that he has received Rs. 15 lakh from society. There were two parts of contract. Part pertained to obtaining land from Government and getting layout plan sanctioned. Part B revealed to civil and other residual work relating to layout. Total contract receipts in respect of part of work amounted to Rs. 3,53,07,443. firm in which Mr. Ramachandrachar is partner has accounted receipts of Rs. 3,16,21,698. He has given blank vouchers and has also signed reverse side of cheques for facilitating payments to be made by society. As per oral agreement he was to receive 10 per cent of cost of work and thus was entitled for Rs. 31 lakhs. Balance Rs. 16 lakhs is still to be received. Such oral agreement was made with Shri D.T.S. Rao. AO has reproduced statement in his order and from it can be inferred that Shri Ramachandrachar stated that he has not constructively received payments as shown by society. In IT return, receipts were shown as society entered into turnkey contract with me and has also deducted TDS on Rs. 3.5 crores. society itself was incurring expenses and quantum and such expenses were to be reflected in books of contractor. He agreed that he has not accepted to bear expenses of marriage of daughter of Shri D.T.S. Rao i.e., Kum. Satya Prema. He stated that he never authorized use of funds of society for personal gain of Shri Rao or his family members. Similar details were given by partner of M/s Raghavendra constructions. It was stated that receipt vouchers were obtained without paying any consideration. Amount of Rs. 13 lakhs was paid while no consideration was paid for vouchers given for Rs. 36 lakhs. 51. From evidences collected, learned AO concluded that late Shri Rao utilized medium of society and contractor for earning huge sum of money. Such amounts stand utilized for his personal purposes as per details available in loose papers. As per books of society, payments made are as under : Financial M/s S.G.R. M/s Raghavendra year Enterprises Constructions 1985-86 to Rs. Rs. 59,16,000 1994-95 3,36,43,433 5 2 . Amounts disclosed by abovereferred two concerns as received from society in their block return are Rs. 1,33,75,186 and Rs. 12,22,000. 53. AO further illustrated from statement that Shri Rao had made payments to persons for getting work done. Such persons cannot be named. However late Shri Rao stated that these amounts were paid on instruction of contractor. These payments were regularized by getting vouchers from contractors. Late Shri Rao admitted that details as mentioned in rough sheets have not been recorded as such in day book and hence he admitted that day book does not reflect true nature of expenditure. following expenses have been particularly questioned from Shri Rao as these were personal expenses but debited to contractor account : Rs. (a) Marriage expenses of daughters 3,80,000 Rs. (b) Flight ticket for Singapore for Mr. Manjunath 30,000 Rs. (c) Ashwini Anand stitching charges 10,000 Rs. (d) Swamy jewellers 50,000 (e) Purchase of corner site in name of Shri Rao and Rs. Shri Prakash 2,25,000 Rs. (f) Rao s Delhi trip 80,000 (g) Rao s Madras and Bombay trips of Rs. 1,00,000 and Rs. 50,000, respectively Rs. (h) Shiamala air ticket 1,00,000 5 4 . All such expenses are admitted but it was stated that contractors agreed to bear such expenses. learned AO also brought on record that late Shri Rao s case before Settlement Commission, Madras was being handled by n advocate of Madras and visits to Madras are made for this purpose. It has been agreed by late Shri Rao that he has done liaison work on behalf of contractors as they were not acquainted with politicians and Government officials. 5 5 . learned Authorised Representative relied on decision of Supreme Court in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) and held that profit earned by late Shri Rao through medium of society and contractor is assessable in his hands. assessee is main force in dealing with purchase of land, developing it and selling it to members and such work is done in name of contractors and hence receipts shown to contractors are profit earned by assessee. 56. assessee contended before AO that all drawings written in their name or name of their family members are not personal expenses. Even if some personal expenses are mentioned then these are from sums given by h i m to Mrs. Gayathri. This Explanation was rejected by AO. AO therefore held sum of Rs. 1,29,38,822 drawn and exploited by assessee as his income. 57. Besides above amount, sum of Rs. 7,61,680 was mentioned in sheets but no year is mentioned. All details of such sums have been mentioned at pp. 5 and 6 of assessment order. These have also been treated as income. Thus addition of Rs. 1,29,38,822 plus Rs. 7,61,680 i.e. Rs. 1,37,00,502 has been made by AO. 5 8 . learned Authorised Representative drew our attention to statement of facts attached with Form No. 36. M/s M.H.B.C.S. was to acquire land, make layouts and allot sites to various members of society. acquisition of land and allotment of sites are governed, determined and controlled by Mysore Urban Development Authority. Turnkey : contractors were appointed for doing liaison and development work of layouts. AO has concluded on basis of statements given on behalf of following three contractors that they have not done any work for society : (a) M/s S.G.R. Enterprises (b) M/s Raghavendra Constructions (c) Shri M. Ramachandrachar 59. As per learned Authorised Representative, Shri Ramachandrachar was forced to make such statement. Subsequently he has retracted from his earlier statement. M/s S.G.R. Enterprises admitted receipts upto certain date and denied receipts after that date to minimize their tax liability. In case of M/s Raghavendra constructions, father of managing partner was examined. He was director of society and is disgruntled person and hence his statement cannot be relied. Copies of statements were not given but AO offered them for cross-examination only on points on which they have given statements to AO. Such opportunity has not been availed as assessee wanted to cross- examine on all points as it was considered necessary for assessment of assessee and M/s M.H.B.C.S. 60. Amounts to such contractors paid by account-payee cheque or bearer cheque in their names or in name of person authorized by them or payments made to persons at their instance. All such payments are supported b y vouchers. Some of contractors have reported such receipts in their returns filed before search. 61. It has been submitted that documents seized from residence of brother of Smt. Gayathri did not contain year in respect of disbursement. Smt. Gayathri was forced to write year in such documents. These disbursements were out of funds entrusted to Smt. Gayathri by assessee and his family members. Similarly contractors entrusted funds to Smt. Gayathri and disbursements were as per instruction of contractor. Smt. Gayathri mentioned name of assessee and his family members as disbursement were made through them. notings in name of Shri D.T. Prakash were specifically directed to be excluded by CIT though these were included in draft order by AO. payments treated as personal can be clarified in following seven categories : (a) Payments made through each one of directors or family members of assessee. Such payments were neither received by assessee nor any benefit accrued to assessee Rs. 32,44,650. (b) Amounts against which initials or name of assessee not mentioned Rs. 46,38,647 (c) Amounts in respect of which word personal has not been mentioned against initials or name of assessee Rs. 11,82,735 (d) Certain payments are duplicate in nature Rs. 10,43,825 (e) Disbursements to extent of Rs. 3,90,815 have already been disclosed by respective persons in returns filed before date of search. (f) Amounts in respect of year is not mentioned Rs. 7,61,680 (g) Amounts disbursed to others at instruction of contractor Rs. 29,08,965. 62. Alternatively, it has been argued that receipts cannot be taxed as these receipts have been applied for making payments on account of contractor or on account of assessee. assessee is director in society and such receipts, if not applied for purpose of society are to be reimbursed to society. Hence, these receipts are not taxable. In respect of amounts disbursed through Shri D.T. Prakash, AO proposed addition but learned CIT(A) observed that in extreme case such disbursement may be termed as embezzlement and not as income. amount was not added. If contractors are dummies then amount received from contractors will not represent consideration for any work to be done by them. 6 3 . learned senior counsel appearing for Revenue drew our attention to fact noted by AO in his order that society, though formed in 1974, became active in 1985. period from 1st April, 1985 is included in block period. Hence non-availability of year in respect of certain payments is not at all relevant. learned senior counsel drew our attention to statement of Smt. Gayathri. In Ans. to Q. No. 3, she has stated that she is working in society since 1985. Shri Rao in his statement recorded in 1996 stated that first project was taken just 5 to 6 years back. Hence it was argued that transactions as appearing in loose papers are all within period covered under block period. 64. learned senior counsel also filed paper book dt. 31st Dec., 2004 containing 105 pages. Vide paper book, learned senior counsel has given extract of personal drawings noted against late Shri D.T.S. Rao. Total of personal drawing noted against Late Shri Rao as per seized material Rs. /KG/Sr. No. 4 = 50,45,552 (pages 1 to 9 of paper book dt. 31st Dec., 2004) as per seized material M.H.B.C.S./ Sr. No. 17 (page Nos. 10 and 11 of paper book dt. Rs. 31st Dec., 2004) 13,89,734 Rs. 64, Total 35, 282 65. After hearing both parties and perusing statements of Smt. Gayathri and Shri Rao, it is clear that entries mentioned in documents referred in paper book dt. 31st Dec., 2004 are after 1st April, 1985 and hence to be considered for block assessment. Non-mentioning of year against some entries will have no impact in respect of assessability of income represented by such entries. Society became active in 1985, Smt. Gayathri joined society in 1985 and first project was also taken up after 1985. second conclusion which we drew, is that no addition of income in hands of assessee can be made in respect of entries in which name of assessee or his family members are not appearing. As learned senior counsel pointed out that details of entries related to personal drawings have been filed at instance of Member of Bench, it is held that we will be considering income, if any, required to b e sustained in hands of assessee in respect of entries totalling to Rs. 64,35,282 as per paper book dt. 31st Dec., 2004. 66. learned Authorised Representative filed details as to why entries of Rs. 64,35,282 cannot be considered as income in hands of assessee. details are as under : Alleged drawings as per 64,35,282 paper book filed by Department Where name of D.T.S. 5,18,000 Rao not appearing Annex. 1 Where entries are repeated 3,33,000 or not entry Annex. 2 Payments of income-tax 68,000 reflected in books of Annex. 3 Detailed amounts spent out of funds given by Late Shri 2,40,500 Rao Annex. 4 Expenses incurred as per instructions of contractor for 33,36,415 44,95,915 society work Annex. 5 49,95,915 19,39,367 Balance 19,39,367 Expenditure incurred where personal is not mentioned in loose 13,56,130 sheets Annex. 6 Expenditure incurred where year is not available in loose 5,83,237 sheets Balance Nil 6 7 . Hence, it was argued that all entries stand explained and no addition is required to be made. learned Authorised Representative drew our attention to p. 79 of his paper book in which worthy CIT made noting as draft order in case of Shri D.T. Prakash : "Not approved, funds taken out of society at worst amount to misappropriation or embezzlement. Such amounts cannot be taxed." 68. learned senior counsel for Revenue stated that onus was on assessee to establish that details as filed now are not required to be considered. learned senior counsel further stated that no evidence (was) produced to show that expenses were incurred at instance of contractor. Subsequent statement of same contractors cannot be relied upon. retraction of statement by such contractors is not to be relied upon. learned senior counsel relied on following case laws : (a) CIT vs. Troilakya Chandra Bora (2003) 182 CTR (Gau) 456 : (2003) 261 ITR 299 (Gau) Amounts embezzled by assessee from employer and utilization in construction of immovable property. Subsequent agreement to return money. Amount cannot be considered as loan. It is assessable as income. (b) Maddi Venkataraman & Co. (P) Ltd. vs. CIT (1998) 144 CTR (SC) 214 : (1998) 229 ITR 534 (SC) Expenses incurred in transactions carried out in violation of provisions of FERA are not deductible. (c) CIT vs. P.S. Chelladurai (1984) 145 ITR 139 (Mad) Assessee staying with family in building where social work was being conducted and assessee and his family taking food in common mess. Assessee not drawing any salary or remuneration. Assessee liable to income-tax in respect of estimated amounts expended on maintenance of himself and family. 69. learned Authorised Representative drew our attention to order of this Bench in case of M.H.B.C.S. (supra). In that appeal, Department relied on report of Asstt. Director, Registrar of Co-operative Societies, Mysore to establish that funds of society were indirectly used for benefit of family members of Shri Rao. He drew our attention to p. 964 of 76 TTJ at which this Bench has taken note of fact that Government of Karnataka ordered enquiry and held that so-called audit report is malicious and false. Action against Asstt. Director was directed to be taken. 70. learned senior counsel appearing for Revenue drew our attention to audit report under s. 142(2A) in case of society available at pp. 152 to 270 of paper book containing 270 pages. At p. 192, auditor has mentioned as under : "The vouchers obtained from contractors in respect of which we have dealt with in detail in this report are mostly pre-stamped, blank signed vouchers i n which management at its discretion and to its inconvenience has filled up figures and details furnished on reverse of those vouchers cover payments made in two accounting years." 71. We have heard both parties. It was admitted by Shri Rao himself that vouchers were subsequently prepared in respect of expenses incurred and noted in documents. It will be relevant to reproduce following extract from statement of Shri Rao dt. 5th March, 1996 : Q. 2 Are these amounts namely marriage expenses of Rs. 3,80,000, wife s ticket charges of Rs. 1,00,000. Flight tickets of Rs. 30,000 for Singapore of Shri Manjunath, repayable to contractors. Ans. No, they are not repayable but they have not asked me to repay. It is just as it is left in contractors account. Q. 3 You have answered that amount spent for Madras trip, Bombay trip and Delhi trip of Rs. 1,00,000, Rs. 80,000 and Rs. 50,000, respectively have been done by you under oral instructions of contractors for society s work. Can you tell me what work exactly you did for society during those trips. Ans. This question has already been answered about spending of money is not effected by me but it has been handed over to persons as per oral instructions of contractor with whom he had agreed to orally and names of those persons from Karnataka cannot be disclosed. Q. 4 Can you state name of persons, amount of money handed over to those persons and date on which said amounts were given. Ans. names cannot be disclosed since they are politicians. And amount, how much has been handed after keeping up of my expenses, has been handed over and I do not exactly remember to extent handed over. We would also like to reproduce following extract of statement of Smt. Gayathri dt. 6th Feb., 1996. Q. 11 I am showing paper noted serial No. 1 which denotes transactions from 5.4 to 21.6. Please tell me to which years it pertains and briefly explain nature of transaction, therein? Ans. Most of receipts shown as cash flow in regular cash book in t h e name of advance given to contractor. However in actual practice no immediate advance is given instead money will remain with us and we will spend money as per directions of contractor. Some of expenditure incurred during that period are : Rs. 10,000 : Amount given to D.T.S. Rao through Manjunath for release of files. Rs. 25,000 : Amount to KEB officials (illegal) Rs. 50,000 : Amount has been paid by D.T.S. Rao to some politicians in Delhi. Rs. 1 lakh : Received from Shri Ramesh Rs. 1 lakh : Paid to Shri Ramesh Rs. 20,000 : Given to G.T. Prakash Rs. 25,000 : Given to D.T.S. Rao, Bangalore Rs. 25,000 : Given to Shri Revanna Siddiah, IPS Rs. 30,000 : Flight ticket purchased for Singapore by advice of Shri Manjunath Rs. 20,000 : Money given to D.T.S. Rao to Madras Rs. 30,000 : Given to D.T.S. Rao for Bangalore trip Rs. 6,000 : Paid to D.T.S. Rao City Bank Account Rs. 5,000 : Paid to D.T.S. Rao City Bank Account Rs. 20,000 : Paid to Secretariat through Ramesh Rs. 1 lakh : Paid to Shanmugaih, Auditor Rs. 50,000 : Paid to D.T.S. Rao to Sharada Vilas STC Institutions. Q. 12. I am showing Annex. 2, please tell me details of paper. Date Amount Explanation 17- Rs. 1 Paid to Shri Ramesh in turn paid to 3-1995 lakh SGR Enterprises 28- Rs. Paid to Shri Ramesh to be paid to 11-1994 50,000 Ramachandrachar 4-2- Rs. Paid to Asstt. Commr. Office 1995 20,000 Amounts paid through D.S. 13- Rs. Manjunath towards donations to political 12-1995 1,25,000 parties Rs. 7-1 50,000 Rs. 16-2 75,000 Rs. 21-1 50,000 Rs. 24-1 1,26,000 Rs. 28-1 20,000 Rs. 4-2 50,000 Rs. 14-1 gold loan taken by D.S. Manjunath 75,000 9-2 1 lakh Amt. paid to Shri Rajashekhar 9-3 25,000 Murthy, Minister 24-1 1 lakh Badev Dass, Under Secretary 72. Above extracts have been given to show information collected by Revenue at time of search. Statements recorded do show that late Shri Rao has played role in getting work of society in respect of layouts, done. Shri Rao states all such payments have been made at instructions of contractors. contractors have denied that they have authorized Shri Rao to make such payments. Shri Rao has admittedly drawn funds for his personal matters and argument is that he was authorised by contractors. Such expenses have not been repaid to contractors. If actually these were repayable, then there was no occasion for Shri Rao to have not paid back sums. In one of judgments, apex Court has observed : "Human probabilities are to be considered as science has not invented any instrument to test truthfulness of statement of person." 7 3 . They way in which drawings have been used by Shri Rao suggested that some of such drawings were actually treated by him as belonging to him but in account books, such amounts were adjusted as advance to contractors. Turnkey contractors were appointed for different projects for getting land acquired and layout plan approved. It was admitted by Shri Rao, that he himself rendered services for such purpose, as contractors were not acquainted of politicians and bureaucrats. Late Shri Rao admitted that he passed on money but failed to give exact amount. Hence, it is held that amounts utilized by assessee for his personal purposes will be income taxable in his hands. 7 4 . Now, we will discuss details as filed by learned Authorised Representative to explain as to why certain amounts are not to be included. Annex. 1 : Name of D.T.S. Rao not mentioned in notings by K. Gayathri. S. Page Date Amount Description No. No. 321 94/95 15/3 40,000 Prabharaj Swamy 355 149 31/8 50,000 Jewellers 358 149 20/8 3,000 Tel 20291 Swamy 362 150 19/7 40,000 Jewellers Sr. No. 17 M.H.B.C.S. Gundu Rao s 8 1 17/5 10,000 daughter s marriage 18 1 21/6 1,00,000 Shanmukhiah 20 2 21/8 25,000 Madras visit Gold loan 21 2 14/1 25,000 paid D.S. 22 2 9/2 1,00,000 Shamala Madras ticket 23 4 4/2 50,000 Madras Swamy 25 2 15/12 50,000 Jewellers Swamy 26 2 15/12 25,000 Jewellers 75. During course of proceedings before us, learned senior counsel has filed comments of AO as per letter addressed by AO to senior counsel. It is submitted that loose sheets as recorded by Smt. Gayathri should be considered as cash book of assessee. Moreover amount of drawings aggregating to Rs. 5,18,000 represent certain personal expenses incurred by Shri Rao. If it is claimed that these are not personal expenses then onus is on assessee to establish it. In respect of entry of Sr. No. 321, it is contended that assessee in Annex. 4 has explained that payment to Prabha Raj of Rs. 15,000 at Sr. No. 156 is out of amounts given by late Shri Rao, therefore, payment of Rs. 40,000 to Prabha Raj at S. No. 321 in Annex. 1 be considered as part of personal nature. It is also mentioned that assessee in Annex. 4 has admitted that certain marriage expenses were met by Smt. Gayathri, hence payment to Swamy Jewellers be treated as personal. 76. We have considered arguments of both parties. Entry in respect of Prabha Raj is available at p. 55 of Departmental paper book containing 105 pages (hereinafter referred as DPB-105) 77. learned AO has rightly pointed out that payment to Shri Prabha Raj has been considered as relating to personal as it is argued that such payment to Prabha Raj as per Annex. 4 is out of funds provided by late Shri Rao. 78. Late Shri Rao vide statement dt. 5th March, 1996 in answer to Q. No. 1 admitted that payment to Swamy Jewellers were in respect of purchase of jewellery in respect of marriage of his daughter. Hence, payments shown in name of Swamy Jewellers are not to be excluded. Expenditure of telephone to b e excluded. Expenditure of Gundu Rao s daughter marriage is not to be excluded as sum represents gift given on marriage and hence related to Shri Rao. Smt. Gayathri in another Q. No. 11 on 6th Feb., 1996 stated that Rs. 1 lakh was paid to auditor. This cannot be personal expenditure of late Shri Rao hence to be excluded. No other item is to be excluded as remaining are personal expenses and can only be related to Shri Rao. 79. Hence as per Annex. 1, amounts to be excluded are Rs. 1,03,000. 80. Annex. 2 contains list of entries which has been repeated. 8 1 . learned AO in his report has submitted that amount of Rs. 3,03,000 represent duplicate entries and this amount be considered for deletion. Hence, sum of Rs. 3,03,000 is deleted. 82. AO has offered comments in respect of two entries which should not be considered for deletion. These are : S. Page Date Amount Remarks No. No. Same as 92 26 7/2 5,000 S.N. 327/71 83. Entry at S. No. 92 relates to amount withdrawn by late Shri Rao and sent through Narsing Rao. 84. S. No. 71 relates to money sent through D.S. Manjunath while entry at S. No. 327, amount was sent on 8th Feb., through D.S.N. Rao. 85. We have seen photocopy of seized documents. Entry at S. No. 92 on back side of p. 26 is for 7th Feb., 1992. Entries at p. 94 of seized document tally with entries on back p. 26. Hence, entry No. 92 at back page of 26 is duplicate entry of S. No. 327 as per comparison of both pages. Hence Rs. 5,000 is held as duplicate entry. Similarly in respect of entry at S. No. 46 of p. 14 of document No. 17/MHBCS is stated to be duplicate of entry at S. No. 45 of p. 12A. AO has stated that withdrawal made on 26th September is entirely different from 25th September. 86. We have seen photocopy of seized documents and list on p. 14, there are two withdrawals of Rs. 25,000 each on 25th September and 26th September. In list prepared by AO, he has taken only one entry of Rs. 25,000 in 26th September, other entry not taken as it is reflected on p. 12A. Hence, we feel that it is not duplicate entry. No relief allowed in respect of such entry. 87. Hence relief of Rs. 3,08,000 allowed in respect of Annex. 2. 88. Annex. 3 contains details of payment of Rs. 68,000 as income-tax and is stated to be accounted in books of S.S. Corporation. This fact will be verified by AO and in case payments have been accounted by S.S. Corporation and not claimed as expenditure then amount will be deleted in hands of assessee. 89. Annex. 4 contains details of sum of Rs. 2,40,500. learned Authorised Representative explained that expenses to such extent stand explained by amounts paid by Shri Rao. learned senior counsel for Revenue stated that such receipts in hands of assessee should be explained for getting relief. As per seized documents, there has been payments to late Shri Rao and it is not mentioned against those payments that these have been spent. Reference may be made to pp. 1 to 9 of DPB-105. We are inclined to accept that such receipts entered in loose sheets be out of such payments. AO in his report has mentioned that entry at p. 51 of seized document 17 MHBCS is in respect of Rs. 66,000 and it represents amounts to be paid on date of making entry. Such expenditure must have been cleared. After considering comments of AO, it is felt that onus was on Revenue to establish that such sums were paid. All payments are reflected in loose sheets. In absence of any evidence of payment, such amount of Rs. 66,000 could not be considered as paid and to be included in undisclosed income. Hence sum of Rs. 2,40,500 is directed to be excluded. 90. Annexure 5 contains details of expenses noted in loose sheets in respect of which it is claimed that expenditure is in connection of society work and incurred on instructions of contractors. 91. learned senior counsel argued that assessee has not proved such expenditure has been incurred for society work. No evidence was submitted that such expenditure was really incurred. notings in loose sheets indicate purpose for which expenditure was incurred. We are inclined to accept correctness of nature of expenditure as mentioned in documents. Expenditure incurred for notification of land acquisition, advocate fee etc. are for purpose of society and such expenses are not personal expenses. Hence, following amounts are directed to be excluded : S. Page Date Amount Description No. No. DTSR- 4 3 15/12 25,000 BNG 6(1)(A) Notification DTSR-3 Acharcar 6 3 18/12 5,500 Advocate fee DTSR- 7 3 20/12 30,000 BNG 6(1)(A) DTSR- BNG 6(1)(A) 8 3 29/12 30,000 Notification Kitty Telephone 11 3 1/1/91 5,500 No. 20291 DTSR- 27 5 26/11 25,000 BNG stay 5(1) 38 6 20/10 7,200 Tel 20291 DTSR- 54 23 26/1 15,000 BNG Mantralaya Salary to 95 27 2/3 20,000 staff DTSR 6(1) 96 27 4/3 20,000 Bang Notification DTSR- 269 91 13/8 20,000 BNG (Stay) 284 92 17/6 860 Tel 20291 Total 2,14,060 92. AO in his comments has mentioned that contractors on oath have stated that they had not authorized late Shri Rao to incur such expenses. Hence claim of Rs. 33,64,415 cannot be allowed. 93. We have noted that against some of expenses, specific narration has been given. Such expenses are not personal in nature. In absence of specific details, it cannot be said that all expenses in Annex. 5 represented expenses for work of society. If one takes into account nature of some of expenses, it cannot be ruled that Late Shri Rao incurred expenses for work of society out of funds withdrawn. Before us, learned Departmental Representative stated that onus is on assessee to prove that amounts withdrawn have been spent for work of society. Keeping in view fact that some expenses are for work of society, matter is restored back on file of AO to give opportunity to assessee to establish that part of such expenses have been utilized for work of society. Such expenses will be reduced from Rs. 33,64,415 to ascertain undisclosed income. 9 4 . Annex. 6 filed by learned Authorised Representative contains details of expenses where name of D.T.S. Rao (is) mentioned but personal (is) not mentioned. 95. AO in his comments has stated that assuming but not admitting that such expenses relate to business, then onus is cast on assessee to establish that such expenses were incurred for business. 9 6 . We have considered arguments of both sides. total of amount is Rs. 13,56,000. It includes following : S. Page Date Amount Description No. DTSR- 124 38 12/5 25,000 BNG Gowri son marriage DTSR- 141 43 17/3 10,000 marriage- Tirupati DTSR-car 174 63 30/7 10,000 tape 175 63 21/8 5,500 DTSR-car DTSR- 213 83 22/1 7,700 Republic day SVES DTSR- 214 83 23/1 5,000 SVES-cultural programme DTSR- 218 83 10/11 40,000 Haridwar tickets DTSR IT 237 86 18/2 25,000 Balance DTSR IT 238 86 24/2 30,000 Balance DTSR- 357 149 25/8 10,000 sisters foreign tour P. No. 17/MHBCS DTSR car 4 1 24/4 3,000 repair DTSR-DTP 6 1 4/5 20,000 family tour 97. above items are specific and not to be excluded. It also cannot be said that car is entirely used for personal purposes. assessee was required to spend amounts on visits and tours. Keeping in view direction given in para 93, this issue is also restored back on file of AO. expenses which are established to have been incurred for work of society will be excluded from Rs. 13,56,000 to ascertain undisclosed income. 9 8 . Annexure 7 contains details in which according to Authorised Representative, year is not mentioned. It has already been held in earlier para that all transactions mentioned in documents have occurred during block period. Hence it cannot be excluded. However nature of entries is same as Annex. 6. As per direction given in respect of Annex. 6, this issue is also restored back on file of AO. 99. While disposing of grounds of appeal No. 3 and 4, it is observed that late Shri D.T.S. Rao has never stated that amounts withdrawn are repayable and hence these cannot be loans. late Shri Rao was looking after work of society and payments received were shown as advance to contractor. Such receipts, which were used for meeting personal expenses and those receipts which did not represent expenses have been treated as income on basis of case laws relied on learned senior counsel of Revenue. Tax audit report supports such conclusions. 100. fifth ground of appeal is against addition of Rs. 12,63,400 as unexplained investment in shares of M/s Chaitanyya Food Products Ltd. 101. During course of search, documents relating to investments made by Shri D.T.S. Rao in M/s Chaitanyya Food Products were found. Enquiries were made from M/s Karnataka State Financial Corporation and it was found investment of Rs. 12,63,000 was made in name of family members and associates. Cash receipts issued by M/s Chaitanyya Food Products were found. assessee submitted following Explanation : "M/s Chaitanyya Food Products Ltd. is company promoted and managed by Shri Jayadevaraya Urs. company was in financial crises. assessee lost all interest to revive company after death of Mr. Jayadevaraja Urs. assessee filed copy of letter written by Shri Jayadevaraja Urs. in which it has been stated that there has been no allotment of shares. assessee is not having copy of balance sheet of company and it should be provided to assessee to rebut evidence." 102. above Explanation has been rejected by AO. As per AO, onus was on assessee that investment has not been made by him. 103. During course of proceedings before us, it was stated that assessee was requested by Shri D. Jayadevaraja Urs. managing director of M/s Chaitanya Food Products (hereinafter M/s CFP Ltd.) to assist him in rehabilitating his company as same was under threat of take-over and sold by financial institution. assessee was appointed managing director and t h e assessee was promised certain remuneration in form of allotment of shares. With view to project bright picture, receipts were signed on behalf of M / s CFP Ltd. by assessee himself. Mr. Urs. later on resiled from undertaking and proposal. He also denied having received any money. Official liquidator and Registrar of Companies rejected claim of assessee his relatives and friends have contributed any monies and are owners of any shares in company. request was made by assessee to AO to furnish copy of balance sheet and other documents on which he has relied, AO stated that receipts are not signed by Shri Urs. and he does not propose to make addition and hence there is no need to provide copies of documents. But AO changed his stand and made addition. 104. learned senior counsel of Revenue stated that receipts were found during search. Such receipts were cash receipts. assessee has not led any evidence to suggest that payments were not made. 105. We have heard both parties. details of investments have been mentioned at p. 58 of order. Investments in name of assessee are of Rs. 4,56,900. Balance investments are in name of 26 persons. It includes names as under also : Bharathi Nagaraj Urs Nagaraj Urs Prabha Basavaraj D. Basavaraj Narsinga Rao. 106 . All 26 persons are not family members of assessee. Receipts are from 15th Dec., 1986 to 29th Aug., 1987. In case investments have been made Benami by assessee then onus was on Revenue to establish it. Search documents showed cash receipts issued by assessee in name of various persons. assessee explained that no money was given and only receipts have been issued. It was pointed that such receipts do not contain signature of Shri Urs. Shri Jaya Devaraja Urs sent letter to Asstt. Registrar of Companies in capacity of chairman of M/s CFP Ltd., and copy was also endorsed to assessee in capacity of director. In this letter, Shri Urs informed : (a) There is no allotment of shares to 31 persons as per letter sent by assessee. (b) There was no application for allotment of shares. (c) alleged allotment violates provision of Companies Act as by alleged allotment, share capital exceeds authorized capital. 107. letter dt. 11th Sept., 1991 signed by Shri D. Jayadevaraja Urs and addressed to advocate, who issued notice on behalf of alleged shareholders shows that managing director of M/s CFP Ltd. stated that none of clients mentioned in notice of advocate are shareholders. Copy of this letter has been addressed to official liquidator. 108. assessee has also filed copy of letter dt. 27th Sept., 1991 from office of Registrar of Companies in which it was intimated that alleged shareholders were not shareholders and hence notice of general meeting has not been given to them. 109. Karnataka State Financial Corpn. vide order dt. 1st Aug., 1987 under s. 29 of SFC Act, 1951, directed taking over of assets of M/s CFP Ltd. Land, Building and transformer along with sub-station of M/s CFP Ltd. were put on sale as per advt. dt. 4th Jan., 1997 by Karnataka State Financial Corporation(KSFC). 110. learned AO has also not provided balance sheet of M/s CFP Ltd. to assessee. When possession of assets have been taken over by M/s KSFC and official liquidator also stands appointed then balance sheet with either of them should have indicated investment. appellant has discharged onus by asserting that receipts were signed by assessee and not by Urs. Financial crisis in company has been established. Copies of letter from authorities indicate that persons alleged to be shareholders are not shareholders. onus was shifted on Revenue and Revenue has not discharged such onus. No evidence mentioned that balance sheet as available with official liquidator or KSFC showed so-called investment. Hence addition of Rs. 12,63,000 is deleted. 1 1 1 . sixth ground of appeal is against addition of Rs. 1,95,000 representing advance given to Mrs. and Mr. Nagaraj Urs. 112. Seized document showed that assessee advanced sum of Rs. 1,95,000 to Mr. and Mrs. Nagaraj Urs. against pledge of jewellery. In statement under s. 132(4), such advance was denied. However vide written submission dt. 6th Jan., 1997, it was contended that advance was made out of funds of joint Hindu family. Before AO, assessee submitted that HUF was not having taxable income and no return was filed. oral partition was made on 15th Jan., 1992 and copy of memorandum was filed. Theory of oral partition was not advanced during search. During search, assessee did not admit fact of advancing money. Pawned jewellery along with pronote was seized from residence of Smt. Gayathri and she stated that pawned jewellery and pronote was given by assessee. 113. During course of proceedings before us, learned Authorised Representative stated that assessee owned ancestral agricultural land. In WT return of 1976, assessee showed loan from HUF. Copy of memo of oral partition dt. 15th March, 1992 was also filed. 114. learned senior counsel of Revenue stated that AO has rightly made addition. 115. We have heard both parties. pronote was seized and it is not case of assessee that pronote showed that advance was given out of HUF funds. While explaining position in respect of receipts of funds from contractors for purpose of performing marriage of his daughter in 1990, assessee tried to explain that he was not having funds and therefore contractors provided funds. In case funds were not there, then such position should be true in respect of funds in individual capacity and HUF capacity. But this was not so. There has been no record or evidence to suggest use of HUF funds for advancing loans. Hence AO was justified in making addition. 116. seventh ground of appeal is against addition of Rs. 3,00,000. 117. Seized document from residence of Smt. Gayathri showed that sum of Rs. 3 lakhs was advanced to Shri A. Ashok Anand on 18th Dec., 1989. T h e document showed that amount was handed over by Shri Ramesh. On enquiry it has been found that said sum has been handed over to Shri Ashok Anand through Shri B. Ramesh out of funds of M/s M.H.B.C.S. Hence, same was added in hands of assessee. 118. During course of proceedings before us, learned Authorised Representative stated that blank stamp paper was seized on which there was endorsement that sum of Rs. 3 lakhs was borrowed from Ramesh and stamp paper was signed by Ashok Anand. Shri Ashok Anand was forced to accept that he has borrowed funds in statement recorded at time of search. Ramesh also denied to have given sum. This amount was added on protective basis in hands of Shri Ramesh. AO in order of Shri Ramesh mentioned that on enquiry, it is found that funds of M/s M.H.B.C.S. were used for advancing same through Ramesh. Such enquiry has not been confronted to us. This amount is not appearing in documents maintained by Smt. Gayathri. There is no material for making such addition in hands of assessee. 119. learned senior counsel appearing on behalf of Revenue supported order of AO. 120. We have heard both parties. AO has clearly mentioned that funds of M/s M.H.B.C.S. were used for advancing sum. No evidence collected to suggest that such advance is on behalf of assessee and he has to receive back such advance. Such advance is not reflected in documents maintained by Smt. Gayathri. Hence there is no justification of making addition of Rs. 3 lakhs in hands of assessee. same is deleted. In result, appeal is partly allowed. *** LATE D.T.S. RAO THROUGH L/H D.S. MANJUNATH v. ASSISTANT COMMISSIONER OF INCOME TAX