These are cross-appeals filed by both parties against order passed by CIT(A) on 24th March, 2003. We find it convenient to dispose of both appeals by consolidated order. ITA No. 546/Mum/2003 (Department s appeal) Department has taken following grounds of appeal: "1. On facts and in circumstances of case and in law, learned CIT(A) erred in deleting disallowance of Rs. 35,77,500 claimed by assessee to have been paid on behalf of their client without appreciating that these payments are nothing but illegal payments made in form of bribes to employees and therefore not allowable as deduction under s. 37 of IT Act, 1961. On facts and in circumstances of case and in law, learned CIT(A) erred in deleting addition by way of disallowance of Rs. 35,77,500 mentioned in ground No. 1, claimed by assessee as reimbursement of expenses paid on behalf of their client without appreciating that these payments made in form of bribes to employees and, therefore, not allowable as deduction under s. 37 of IT Act, 1961." assessee company is engaged in business of customs house clearance of imports and exports on behalf of its clients. It provides package of services to exporters and importers in matter of clearance of their imports and exports. Search and seizure operation under s. 132 of IT Act was carried o u t on 2nd Dec., 1999 at office premises of assessee as well as residential premises of its directors. During course of search, certain loose papers and notebooks were found and seized. However, no valuable was seized except sum of Rs. 2 lakhs in cash from residence of director and cash of Rs. 52,866 from office premises of assessee. During course of search, it was stated by director that they had paid Rs. 800 to Rs. 1,000 per consignment to various authorities for having consignments cleared. It was also stated that sum of Rs. 2,500 to Rs. 3,000 was spent in docks in cash p e r consignment on account of processing and handling charges, container destuffing charges, container retainer charges, mutilation charges, etc. on behalf of customers. At time of search, sum of Rs. 1.50 crores was declared as undisclosed income in hands of assessee company and its associate concerns namely M/s Embee Road Services (P) Ltd. and Embee Freight Carriers on account of aforesaid expenses. However, said declaration was later retracted by notarized affidavit dt. 31st Dec., 1999 signed by Shri Shyam Sunder Makkar, director in assessee company. Block return was filed declaring nil income. However, AO has computed undisclosed income at Rs. 1,74,72,168, which includes addition of Rs. 1,68,73,433 being cash expenses. As evident from grounds of appeal taken by Department before us, case of Revenue is that sum of Rs. 35,77,500 out of aforesaid cash expenses represented payments which were illegal being in form of bribes to employees of Government and its agencies and hence their deduction was specifically hit by Explanation to s. 37(1) of IT Act. case of assessee, on other hand, is three-fold: one, assessee is only agent of its clients and hence it receives only commission and nothing else from them; two, assessee being agent of its clients receives money from principals, i.e., its clients and incurs cash expenses on their behalf for having their consignments cleared and hence expenses incurred by its principals cannot be said to have been incurred by assessee; and three, amount that assessee receives from its clients for meeting handling expenses at port are spent on their behalf without claiming n y deduction for them in its P&L a/c. It is submitted by assessee that Explanation to s. 37(1) can be invoked only when assessee claims allowance or deduction for certain expenses. It is reiterated by assessee that it has neither booked impugned expenses in P&L a/c nor otherwise claimed any deduction for same before AO and hence AO was not justified in making impugned disallowance. We have heard parties. Revenue has challenged deletion of impugned disallowance of Rs. 35,77,500 on short ground that payments i n respect of which impugned disallowance has been made are nothing but illegal payments made in form of bribes to employees and therefore not allowable as deduction under s. 37 of IT Act, 1961. Sec. 37 provides for allowable as deduction under s. 37 of IT Act, 1961. Sec. 37 provides for allowance of any expenditure (not being expenditure of nature described in ss. 30 to 36 and not being in nature of capital expenditure or personal expenses of assessee), laid out or expended wholly and exclusively for purposes of business or profession carried on by assessee. Explanation to s. 37(1) bars deduction of any expenditure incurred by assessee for any purpose which is offence or which is prohibited by law. Sec. 37 or its Explanation cannot therefore be pressed into service unless assessee seeks deduction for expenditure. Disallowance of expenditure can arise only when there is claim for its allowance. If assessee does not claim allowance for any expenditure in P&L a/c, question of disallowance of such expenditure cannot arise. In matter before us, it is claim of assessee that it has n o t claimed any deduction for impugned expenditure in its P&L a/c and hence AO was not justified in disallowing same. Department has not placed any material before us to controvert aforesaid submission made on behalf of assessee. In this view of matter, appeal filed by Department is liable to be dismissed. We order accordingly. ITA No. 435/Mum/2003 (Assessee s appeal) Ground No. 1 taken by assessee reads as under: "Addition of Rs. 7,77,480 on alleged renovations at office premises On facts and circumstances of case and in law, learned CIT(A) has erred in upholding additions made by AO on account of alleged renovation made at office premises on basis of seized loose paper bearing page No. 18 of Annex. "A-1". In doing so, learned CIT(A) has erred in not considering fact that items of renovation work mentioned in paper do not correlate with actual renovation work carried out by appellant." During course of search and seizure operation, loose paper marked serial No. 18 in Annex. I of seized documents was seized from residence of Shri Shyam Sunder Makkar, director of assessee company. According to AO, said document contains details of additions and alterations made t o Masjid Bunder office at cost of Rs. 7,77,482. AO took note of statement of Shri Shyam Sunder Makkar recorded at time of search on 3rd Dec., 1999 in which he had admitted that aforesaid seized paper pertained to renovation of office at Masjid for sum of Rs. 7.77 lakhs. He also took note of another statement of Shri Shyam Sunder Makkar recorded on 29th Dec., 1999 in which he stated that aforesaid paper was only estimate of renovation of assessee s office premises at 105, Abhay Steel House. In his statement recorded at time of search on 3rd Dec., 1999, Shri Hemal Makkar, another director stated that they had renovated office premises at cost of Rs. 7,77,480 which were duly accounted. AO felt that aforesaid paper was indicative of actual expenditure incurred on renovation of office premises of assessee. He therefore rejected plea of assessee that it was mere estimate of renovation expenses. It is in this background that AO has made impugned addition of Rs. 7,77,480 being unexplained investment on renovation of office premises of assessee. On appeal, learned CIT(A) has confirmed aforesaid addition for reasons given in para 6 of his order with following observations: "6.3 On perusal of loose papers being page No. 18 of Annex. A-1, it is seen that appellant has not brought any verifiable material on records to refute that renovations amounting to Rs. 7,77,480 were made by it. appellant has only relied upon legal decisions to substantiate its claim. appellant has not been able to dislodge presumption as mentioned in s. 132(4A) of IT Act. Considering this, I find that AO has correctly made addition of Rs. 7,77,480 in hands of assessee. I, therefore, confirm addition made by AO thereby taxing amount of Rs. 7,77,480 as undisclosed income of appellant. AO has telescopically adjusted addition of Rs. 7,77,480 in addition of Rs. 1.68 crores. Considering fact that I have granted relief in respect of addition made of Rs. 1.68 crores, telescopic adjustment of Rs. 7,77,480 cannot be made. Considering same, amount of Rs. 7,77,480 is taxed as appellant s undisclosed income. Thus, this ground of appeal is dismissed." We have heard both parties. We have also perused copy of aforesaid seized paper, which has been placed by assessee at pp. 33 and 34 of its paper book submitted before us. aforesaid papers do not give any indication about year in which alterations were carried out or about place at which they were carried out. Some of items are recorded date-wise without recording year while many other items do not carry even date. Then there are items showing certain amounts against items like kitchen fan, temple, Italian marbles, curtains, bathroom works, etc. It was claimed by assessee before AO that items mentioned in said loose papers were non-existent at office premises. It was also case of assessee before AO that aforesaid paper was only estimate of expenses. AO did not agree with them with result that he made impugned addition on t h e basis of statement recorded at time of search. In our view, aforesaid papers as also statements made at time of search simply provided clue to Department to investigate matter further and verify as to whether any alteration was at all carried out at office premises and if so, expenditure incurred in carrying out those renovations. This was all more necessary when both directors had retracted from their statements and when it was stated before AO that items mentioned in seized papers were non-existent at office premises. Since Department has not linked contents of seized paper with actual renovations allegedly carried out at office premises, it is difficult to sustain addition. Rebuttable presumption raised by s. 132(4A) is restricted to accepting genuineness of document found at time of search and not to interpretation of those documents. In this view of matter, impugned addition made by AO and sustained by learned CIT(A) is deleted. Ground No. 1 is allowed. Ground No. 2 taken by Department reads as under: "Addition of Rs. 36,28,700 on account of alleged unexplained loans and Rs. 5,98,735 on account of alleged undisclosed interest income. On facts and circumstances of case and in law, learned CIT(A) has erred in upholding addition made by AO on account of unexplained loans amounting to Rs. 36,28,700 and Rs. 5,98,735 as alleged unexplained interest income. addition aggregates to Rs. 42,27,435. In doing so, learned CIT(A) has erred in not considering evidence submitted by appellant in support of its claim." impugned addition is based upon notings in loose paper marked page No. 15 of Annex. A-1 of documents seized from residence of Shri Shyam Sunder Makkar. copy of said paper has been placed at p. 35 of paper book submitted by assessee before us. said paper carries only 3 digits without any zero suffixing them. Shri Shyam Sunder Makkar admitted in his statement recorded on 3rd Dec., 1999 that figures mentioned in said paper were in codified form and therefore should be read by adding three zeroes to them (i.e. 297 denoting Rs. 2,97,000). said paper is in handwriting of Shri Om Prakash Makkar, who is handling business of assessee at Panipat. In its explanation dt. 10th Nov., 2001, assessee explained before AO that said paper contained rough list of assessee s debtors. Along with said letter, assessee also filed list of parties together with their addresses before AO in respect of whom jottings were made on seized paper. assessee requested AO to call aforesaid parties for confirmation about genuineness of business transactions of assessee with them. AO, however, observed that since assessee had carried out transactions outside books and hence concerned parties would have also not recorded them in their books. According to him, transactions recorded in said paper were, therefore, not capable of verification with records of parties mentioned therein. In this view of matter, he therefore did not summon those parties. AO also observed that total outstanding of all aforesaid parties as on 21st April, 1999 (i.e. date mentioned on seized paper) was much more than amounts stated in seized paper. AO therefore rejected explanation of assessee and treated amounts mentioned in seized paper as unexplained investment outside books of account for which he made impugned addition amounting to Rs. 36,28,700. Besides, he added another sum of Rs. 5,98,735 being interest earned on aforesaid unexplained investments. This is how impugned addition works out to be Rs. 42,27,435. On appeal, assessee explained before learned CIT(A) that seized paper was in handwriting of Shri Om Prakash Makkar who was director in assessee company as also director in another group company, director in assessee company as also director in another group company, namely, Embee Road Services (P) Ltd. assessee also explained before learned CIT(A) that said paper was prepared to review position of debtors of both businesses and hence it was in nature of management information sheet of debtors. assessee invited attention of learned CIT(A) to affidavits filed before AO confirming fact that neither any loan was taken by debtors nor was any amount received by them as interest thereon. It was pointed out before learned CIT(A) that 90 per cent of parties mentioned in seized paper had given affidavit while remaining 10 per cent filed their affidavits before CIT(A). Learned CIT(A), however, confirmed order of AO with following observations: "7.3 On going through loose papers and above submissions of appellant as well as contentions of AO, I find that AO has correctly made addition of Rs. 42,27,475. I therefore, confirm addition made by AO. AO has telescopically adjusted addition of Rs. 36,28,700 in addition of Rs. 1.68 crores. Considering fact that I have granted relief in respect of addition of Rs. 1.68 crores, telescopic adjustment of Rs. 36,28,700 cannot be made. Considering same, amount of Rs. 36,28,700 is taxed as appellant s undisclosed income. Insofar as interest amount of Rs. 5,98,735 is concerned, AO has not telescopically adjusted this addition. Hence, AO is directed to make this addition of Rs. 36,28,700. Thus, this ground of appeal is dismissed." We have heard parties and also perused copy of seized paper placed in paper book filed before us. Sec. 69 empowers AO to treat investments made by assessee in given financial year as unexplained investment of that year if investment so made by him is not found recorded in books of account maintained by him and assessee fails to offer satisfactory explanation about nature and source of such investments made by him. In order to bring case within ambit of s. 69, AO must bring sufficient materials on record to establish that (i) assessee has made investments and, if so, form of investments and amount of money that has gone into making investments; (ii) identify financial year in which investments have been made; (iii) fact that investments so made are not recorded in books of account maintained by him for any source of income; and (iv) there is failure on part of assessee in satisfactorily explaining nature and source of such investments. Mere jottings in codified form on sheet of paper do not lead to presumption that such entries or jottings are investments hit by s. 69 of IT Act. In matter before us, assessee had filed list of parties along with their addresses in respect of whom jottings were made in seized paper and requested AO to examine them. It was therefore for AO to find out as to whether jottings made in seized paper really pertained to debtors recorded in assessee s books of account. Secondly, assessee had filed affidavits of parties mentioned in seized paper and requested Department to summon them and verify facts, which AO did not do. Thirdly, it is not case where assessee has not offered any explanation about nature and source of transactions shown in seized papers. If Department was keen to reject them, it was open to them to do so after examining executants of affidavits and after rebutting explanation given by assessee. AO presumed unexplained nature of jottings made in said seized paper without examining concerned parties who have filed their affidavits. Additions cannot be made on basis of conjectures and surmises. In our view, materials brought on record by AO are not sufficient to bring case of assessee within ambit of s. 69 of IT Act. Ground No. 2 is allowed. Appeal filed by assessee is allowed. Before parting with both matters, we may mention that all submissions made by parties including authorities referred to by them at time of hearing as also those mentioned in their written submissions have duly been considered though they may not have specifically been discussed in this order. *** EMBEE CLEARING & SHIPPING SERVICES (P) LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX