N.V. Vasudevan, J.M. This is appeal by assessee against order dt. 14th March, 2002 of CIT(A)-I, New Delhi, relating to block period 1987-88 to 1997-98. 2. First, we shall take up for consideration additional ground of appeal raised by assessee regarding plea of assessee that order of assessment is barred by limitation. additional ground raised by assessee in this regard reads as follows : "That impugned assessment framed by learned Dy. CIT, CC- 6 , vide order dt. 21st Sept., 2001 is without jurisdiction, being barred by limitation as provided under s. 158BE of Act." 3. This additional ground was admitted for adjudication by Tribunal vide order dt. 24th May, 2005. facts and circumstances under which additional ground arises for consideration are as follows. assessee is company incorporated on 24th Feb., 1985 having its registered office at H-l, Zamrudpur Community Centre, Kailash Colony, New Delhi. assessee was mainly engaged in business of investment in shares and finance. search n d seizure operation under s. 132(1) of IT Act, was conducted at various business premises of Mesco Group and also at premises of its auditors M/s A.R. Associates, between period 2 6 th Feb., 1997 to 1st May, 1997. assessee is company related to aforesaid group. During search, various books of accounts and loose papers were found and seized. From seized documents (Annex. AA-84, p. 42) seized from H-1, Zamrudpur Community Centre, Kailash colony, New Delhi, it was found that assessee with other co-owners had purchased shop at South Extension in financial year 1994-95 for consideration of Rs. 1.40 crores. It was also found that payment of Rs. 50 lacs was made by cheque and payment of Rs. 90 lacs was made in cash. Since evidence gathered during search indicatedprima facieconcealment of income by assessee, notice under s. 158BD of IT Act, after recording detailed reasons on 10th March, 1999 was issued on 10th March, 1999, requiring assessee to file its return of undisclosed income for block period. notice was duly served upon assessee on 1 6 th March, 1999. In response to that, return for block period was filed by assessee on 10th May, 2000 declaring total undisclosed income at Rs. 7 6 ,800. learned Dy. CIT by order dt. 21st Sept., 2001, computed undisclosed income of assessee at Rs. 32,35,5 6 ,800 . assessee being aggrieved had preferred appeal before learned CIT(A) who vide herex parte order dt. 14th March, 2002 dismissed appeal. Hence, present appeal by assessee (before) Tribunal. provisions of s. 158BE, relevant for adjudication of this appeal read as under : Sec. 158BE :Time limit for completion of block assessment ..... (2) period of limitation for completion of block assessment in case of other person referred to in s. 158BD shall be (a) One year from end of month in which notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets requisitioned after 30th day of June, 1995 but before 1st day of January, 1997; and (b) Two years from end of month in which notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after 1st day of January, 1997. Explanation 1 : In computing period of limitation for purposes of this section, (i) period during which assessment proceeding is stayed by order or injunction of any Court; or (ii) period commencing from day on which AO directs assessee to get his accounts audited under sub-s. (2A) of s. 142 and ending on day on which assessee is required to furnish report of such audit under that sub-section; or (iii) time taken in reopening whole or any part of proceeding or giving opportunity to assessee to be reheard under proviso to s. 129; or (iv) in case where application made before Settlement Commission under s. 245C is rejected by it or is not allowed to be proceeded with by it, period commencing on date on which such application is made and ending with date on which order under sub-s. (1) of s. 245D is received by CIT under sub-s. (2) of that section shall be excluded : Provided that where immediately after exclusion of aforesaid period, period of limitation referred to in sub-s. (1) or sub-s. (2) available to AO for making order under cl. (c) of s. 158BC is less than sixty days, such remaining period shall be extended to sixty days and aforesaid period of limitation shall be deemed to be extended accordingly." 4. reading of abovestated provisions contained in s. 158 BE(2) of Act shows that in case search and seizure operations under s. 132 of Act were initiated after 1st Jan., 1997, assessment has to be completed within two years from end of month in which notice under s. 158BD is served on assessee. However, such period of limitation is to be extended in case where AO directs assessee to get his accounts audited under s. 142(2A) of Act. This has been provided in Expln. 1(ii) to s. 158BE of Act, which provides that period commencing from day on which AO directs assessee to get his accounts audited under sub-s. (2A) of s. 142 and ending on day on which assessee is required to furnish report of such audit under that sub- section has to be excluded from period of limitation. 5 . facts relevant for adjudication of additional ground are as follows. Date Particulars In case of of assessee letter was addressed by assessee to AO citing : specific reasons and requesting that period for getting report of special auditor be extended for another sixty days. (i) On 8.3.2001 (ii) AO extended period of special audit by another On 45 days. 14.3.2001 (iii) assessee wrote letter to AO for further extension On 2 6 of period of special audit by another 75 days. .4.2001 (iv) On AO extended period of special audit by 30 days. 30.4.2001 letter from Jt. CIT, Range I, extending period for special audit upto 31.5.2001 was sent to assessee. This (v) letter was in response to assessee s request to extend time On vide letter dt. 2 6 .4.2001 copy of which was also addressed 10.5.2001 to Jt. CIT. validity of extension of time by Jt. CIT will be examined later in light of provisions of s. 142(2A) to 142 (2C) of Act. (vi) By letter dt. 15. 6 .01 AO extended period of On 15. 6 special audit by another 15 days subject to maximum period .2001 of 180 days from date of commencement of special audit. (vii) report of special auditor under s. 142(2A) is On 20. 6 furnished to AO. .2001 6 . reference to provisions of ss. 142(2A) to (2C) is necessary to compute period of time for completion of block assessment in this case. These provisions read as follows : "Sec. 142 (2A):If, at any stage of proceedings before him, AO having regard to nature and complexity of accounts of assessee and interests of Revenue, is of opinion that it is necessary so to do, he may, with previous approval of Chief CIT or CIT direct assessee to get accounts audited by accountant, as defined in Explanation below sub-s. (2) of s. 288, nominated by Chief CIT or CIT in this behalf and to furnish report of such audit in prescribed form duly signed and certified by such accountant and setting forth such particulars as may be prescribed and such other particulars as AO may require;. 142 (2B):The provisions of sub-s. (2A) shall have effect notwithstanding that accounts of assessee have been audited under any other law for time being in force or otherwise; 1 4 2 (2C) :Every report under sub-s. (2A) shall be furnished by assessee to AO within such period as may be specified by AO : Provided that AO may, on application made in this behalf by assessee and for any good and sufficient reason, extend said period by such further period or periods as he thinks fit. So, however, that aggregate of period originally fixed and period or periods so extended shall not, in any case, exceed 180 days from date on which direction under sub-s. (2A) is received by assessee." plain reading of above provisions makes it clear that firstly, it is AO who fixes time-limit for obtaining and furnishing of report of special audit by assessee. Secondly, it is only AO who can extend time-limit for furnishing report of special audit by assessee. AO can do so, only on application by assessee and on assessee showing good and sufficient cause. Thirdly, even AO cannot extend time-limit beyond aggregate period of 180 days from date on which direction under s. 142(2A) is received by assessee. above provisions have to be strictly construed because consequences of assessee not complying with directions of AO, empower AO to proceed to make best judgment assessment in terms of s. 144(1)(b) of Act. Another reason for strict construction of above provisions would be that time-limit for completion of assessment would get enlarged by period taken for obtaining of report of special audit and provisions of s. 142(2A) should not be used as means to get benefit of extended period of limitation by AO. 7. first issue to be decided is as to what is period of time that has to be excluded in present case as per Expln. 1(ii) to s. 158BE. From sequence of dates and events given above, it is clear that direction to complete special audit was given to assessee on 18th Dec., 2000. time-limit given was 6days from that date, i.e. report ought to have been obtained on or before 17th Feb., 2001. By letter dt. 14th March, 2001, AO extended time by 45 days i.e. time was extended upto 30th April, 2001. On 30th April, 2001 time was extended by another 30 days by AO i.e. report was to be filed on or before 30th May, 2001. On 10th May, 2001, Jt. CIT wrote letter to assessee extending period of time by 30 days i.e. upto 31st May, 2001. question that arises for consideration is as to whether this direction is valid because it was only Dy. CIT, CC- 6 , New Delhi, who was AO and Jt. CIT, CC-1, New Delhi, was not AO. contents of this letter read as follows. "M/s 21st Century Finance Ltd. H-1 Zamrudpur Community Centre Kailash Colony New Delhi 110 48 Sir, Sub: Special audit in case of M/s 21 Century Finance Ltd. reg. As you are aware, M/s V. Sankiar Aiyar & Co., chartered accountants were appointed to carry out special audit under s. 142(2A) of Act vide office order of Dy. CIT, CC- 6 , New Delhi dt. 18th Dec., 2000. Further, vide orders dt. 14th March, 2001 and 30th April, 2001 time-limit for special audit was extended further by 45 days and 30 days respectively. Thus, total period of 135 days has already been granted for work of special audit. However, it is learnt that books of account and supporting documents for relevant period have not yet been made available to auditors. In this regard, your letter dt. 2 6 th April, 2001 requesting for further extension has been noted. You are required to finalise work undertaken by you at earliest and make accounts available to auditor positively by 31st May, 2001. Please note that no further extension of period for special audit may be considered if you fail to comply with above requirement within stipulated date. Yours faithfully, Sd/- Ajay Singh Jt. CIT, C.R. 1, New Delhi Copy to: (i) CIT, Central-1, New Delhi : for kind information, (ii) Dy. CIT, CC- 6 , New Delhi (iii) V. Sankar Aiyar & Co. Cas Satyam Cinema Complex, Ranjit Nagar, Commercial Complex, New Delhi- 110 08 Sd/- Ajay Singh Jt. CIT, C.R. 1, New Delhi" learned counsel for assessee drew our attention to definition of AO as given in s. 2(7A) of Act which reads as follows. Sec. 2 (7A):"AO means Asstt. CIT (or Dy. CIT) (or Asstt. Director) (or Dy. Director) of ITO who is vested with relevant jurisdiction by virtue of directions or orders issued under sub-s. (1) or sub-s. (2) of s. 120 or any other provisions of this Act, and (Jt. CIT or Jt. Director) who is directed under cl. (b) of sub-s. (4) of that section to exercise or perform all or any of powers and functions conferred on, or assigned to, AO under this Act;" 8. He contended that under s. 120(4)(b) Jt. CIT to exercise power of AO should be given such power by general or special order. Admittedly there was no such order. Therefore direction extending time for completion of special audit to 30th May, 2001 by Jt. CIT in letter dt. 10th May, 2001 cannot be said to be extension of time for getting special audit report given by AO. 9. However, on 15th June, 2001, AO extended period by 15 days. This letter of AO reads as follows. "To Principal Officer M/s 21 Century Finance Ltd. H-1, Zamrudpur Community Center Kailash Colony, New Delhi Sub: Special audit under s. 142(2A) of IT Act, 19 6 1 in case of M/s 21st Century Finance Ltd. Sir, Please refer to your letter dt. 13th June, 2001 on subject cited above. In this connection you being informed that time for special audit is extended by 15 days on your request subject to maximum of 180 days from date of commencement of special audit. Please also note that no further time shall be extended. Therefore, you are requested to kindly comply with direction dt. 18th Dec., 2000 and get your account audited within time. Yours faithfully, Sd/- (Avinash Kumar) Dy. CIT, CC- 6 , New Delhi" 1 0 . question is as to whether time-limit can be considered as extended by 15 days from 31st May, 2001 period already allowed by Jt. CIT which has already been held by us to be not valid (or) from 30th April, 2001 which is time legally allowed by AO by way of extension of time. period of various extensions of time granted in this case shows that period from which time is extended is not mentioned therein. extension of time if construed as having been allowed from time originally fixed will show following position : 18.12.2001 6days time expired on 1 6 .2.2001. Extension of 45 days was granted i.e. on or before 14.03.2001 2.04.2001. Extension of 30 days was granted i.e. on or before 30.04.2001 1.05.2001 Extension of 15 (sic. 30) days was granted i.e. on 10.05.2001 or before 31.5.2001 (of course by Jt. CIT) 15.0 6 Extention of 15 days was granted i.e. on or before .2001 15.0 6 .2001. 20.0 6 Audit report furnished by special auditor. .2001 Even assuming that extension granted by Jt. CIT who was not AO, is to be ignored yet tenor of extension on 15th June, 2001 by AO clearly shows that he had allowed overall period of 180 days from 18th Dec., 2000. extension by AO on 15th June, 2001 cannot be construed as one from 1st May, 2001 to 1 6 th May, 2001 only. Even assessee has understood extension as valid upto 1 6 th June, 2001. It now suits assessee to say that there was no extension by AO between period 1st May, 2001 to 31st May, 2001. In fact assessee has itself recognized (acknowledged extension of time from 1st May, 2001 to 31st May, 2001 in its letter to AO dt. 1st June, 2001). We notice that extension of time by AO was allex post facto . There is therefore every reason to believe that AO extended 15 days time from 31st May, 2001 duly acknowledging extension of period between 1st May, 2001 to 31st May, 2001. 1 1 . Thus, as matter of fact, taking into account all aforesaid extensions, assessee was to get his accounts audited by 1 6 th June, 2001, i.e. 180 days from 18th Dec., 2000. Therefore, period from 18th Dec., 2000 to 1 6 th June, 2001 is to be excluded in terms of Explanation to s. 158BE of Act. Accordingly, balance period of 104 days i.e. period from 18th Dec., 2000 (date of direction) to 31st March, 2001 (date of completion of assessment in normal course) is to be counted from 1 6 th June, 2001 for determining period of limitation, as result of which period of limitation expired on 28th Sept., 2001, whereas instant assessment had been framed on 21st Sept., 2001. learned counsel for assessee submitted that fact that period of limitation expired on 31st Aug., 2001, is also admitted by AO in his notice dt. 20th Aug., 2001 (p. 74 of PB). This letter of AO addressed to assessee in course of assessment proceedings read as follows. "To Principal Officer M/s Twenty First Century Finance Ltd. H-1, Community Centre, Zamrudpur Kailash Colony New Delhi Sub : Assessment proceeding for block assessment year reg. Sir, Please refer to above. In this connection detailed questionnaire was issued under s. 142(1) of IT Act to file certain details on 30th Sept., 1999. But on appointed date neither anybody attended nor any application seeking adjournment was filed. Another notice under s. 143(2) dt. 21st Sept., 2000 was issued to file details on 4th Oct., 2000. This notice also remained uncomplied with. Notices under s. 142(1)/142(2) dt. 12th July, 2001 and 25th July, 2001 also remained uncomplied with. matter is barred by limitation on 31st Aug.,2001. Therefore, you are show-caused as to why case should not be completed on merits. Your reply along with required details should reach undersigned on or before 27th Aug., 2001. If you fail to reply case shall be finalised under s. 144 of IT Act, 19 6 1. notice under s. 143(2) of Act is attached herewith for 27th Aug., 2001. Yours faithfully, Sd/- Dy. CIT, CC- 6 , New Delhi- 110 01" 12. In our view fact that AO made some statement regarding limitation cannot amount to estoppel. period of limitation has to be computed in accordance with relevant provisions of law. It is therefore held that assessment order is not barred by limitation stipulated under s. 158BE of Act, and consequently same is held to be valid. ground of appeal of assessee is dismissed. 13. Another facet of argument of learned counsel for assessee on question of order of assessment being barred by limitation of time was that order directing special audit under s. 142(2A) was passed without affording opportunity of hearing to assessee and therefore in view of decision of Hon ble Supreme Court in case ofRajesh Kumar & Ors. vs. Dy. CIT & Ors. (200 6 ) 20 6 CTR (SC) 175 : (200 6 ) 287 ITR 91 (SC),the reference to special audit should be held to be invalid and consequently, extended period special audit should be held to be invalid and consequently, extended period of limitation for passing order of assessment should be held to be not available to AO in this case. This argument need not detain us for long. decision relied upon by learned counsel for assessee in case ofRajesh Kumar (supra) provides answer in paras 52 and 53 of judgment which reads as follows. "52. Whereas order of assessment can be subject-matter of appeal, direction issued under s. 142(2A) of Act is not. No internal remedy is prescribed. Judicial review cannot be said to be appropriate remedy in this behalf. appellate power under Act does not contain any provision like s. 105 of Code of Civil Procedure. power of judicial review is limited. It is discretionary. Court may not interfere with statutory power - for example,Jhunjhunwala Vanaspati Ltd. vs. Asstt. CIT (2004) 188 CTR (All) 434 : (2004) 2 66 ITR 6 57 (All),see, however,U.P. State Handloom Corporation Ltd. vs. CIT (1988) 6 9 CTR (All) 195 : (1988) 171 ITR 6 40 (All). 53. hearing given, however, need not be elaborate. notice issued may only contain briefly issues which AO thinks to be necessary. reasons assigned therefor need not be detailed ones. But, that would not mean that principles of (natural) justice are not required to be complied with. Only because certain consequences would ensue if principles of natural justice are required to be complied with, same by itself would not mean that Court would not insist on complying with fundamental principles of law. If principles of natural justice are to be excluded, Parliament could have said so expressly. hearing given is only in terms of s. 142(3) which is limited only to findings of special auditor. order of assessment would be based upon findings of special auditor subject of course to its acceptance by AO. Even at that stage assessee cannot put forward case that power under s. 142(2A) of Act had wrongly been exercised and he has unnecessarily been saddled with heavy expenditure. appeal against order of assessment, as noticed hereinbefore, would not serve any real purpose as appellate authority would not go into such question since direction issued under s. 142(2A) of Act is not appellate order." 1 4 . action of AO directing assessee to get his books of accounts audited by special auditor being administrative action, same cannot be challenged in present appellate proceedings. plea of assessee in this regard is therefore rejected. 1 5 . next argument of learned counsel for assessee was that direction to get books of accounts of assessee subjected to special audit was not valid because conditions necessary for invoking such powers under s. 142(2A) viz., (a) nature of accounts, (b) complexity of accounts, and (c) interests of Revenue are not fulfilled in present case. Consequently extended period of limitation was also not available to AO. We have already held that decision directing special audit is purely administrative decision and cannot be subject-matter of appeal against order of assessment. Consequently, this plea of assessee is also rejected. 1 6 . next argument of learned counsel for assessee was that proceedings under s. 158BD had been initiated by AO against assessee. When search under s. 132 conducted on any person, say A, and in course of such search documents or evidence or property of say person B is found, then AO of person on recording satisfaction that material unearthed in search belongs to person B, he records such satisfaction and informs AO of person B. AO of B thereafter issues notice under s. 158BD to B and makes assessment. In present case there was search in case of M/s Mid East India Ltd. assessee is one of group companies of M/s Mid East India Ltd. AO assessing assessee and M/s Mid East India Ltd. (MIL) is one and same person. In course of search of MIL sale deed of property at NDSE was found which showed that said property was acquired by 6 persons for Rs. 50 lacs. assessee is also one co-owner of said property having paid consideration to extent of Rs. 7 lacs. Some other documents seized in course of search revealed that actual sale consideration paid for purchase of this property was Rs. 1.40 crores. Rs. 90 lacs had been paid apart from what was recorded in sale deed. It is consequent to above discovery that proceedings under s. 158BD were initiated against assessee. AO recorded following note of satisfaction under s. 158BD in case of assessee. "The assessee along with other co-owner acquired property at South Extension. As per sale deed seized during course of search on 20th Feb., 1997 in case of M/s Mid East India Ltd., H-1, Zamrudpur Community Center, Kailash colony, (Annexs. A-42, 4 6 and AA-45), details of consideration paid (other than stamp duty and other charges) are as under (during financial year 1994-95). Natasha Singh 8,50,000 J.K. Singh 8,50,000 Rita Singh 8,50,000 Shipra Singh 8,50,000 J.K. Singh, HUF 9,00,000 21st Century Finance Ltd. 7,00,000 50,00,000 Some other documents indicating payment of more than Rs. 50,00,000 for purchase of this property were seized during search. Page 42 of Annex. AA- 84 i s letter dt. 24th Aug., 1994 from Shri. R.K. Gupta employee of group company to managing director, Rita Singh. It says that purchase of shop at South Extension has been finalised as per which total payment of Rs. 50 lacs by cheque and Rs. 90 lacs by cash is to be given. At p. 11 of abovesaid annexure, is photocopy of receipt of Rs. 8 lacs by cash as advance towards sale of above shop. Even this receipt mentions total considerations for above-mentioned property as Rs. 1.40 crores. It says, "The total amount settled for shop Nos. 8, 9, 10 and 11 measuring approx. 940 sq.ft. with open space measuring approx. 440 sq.ft. is rupees one crore and forty lacs." Thus, in case of search on M/s Mid East India Ltd. particulars of undisclosed income of assessee, M/s 21st Century Finance Ltd. have been seized. Similary, during search on other cases of this group, documents containing undisclosed income of assessee have also been seized. I am also AO of M/s Mid East India Ltd. and other cases of this group. Hence, this should be taken as forwarding of particular of undisclosed income of 21st Century Finance Ltd. by AO of M/s Mid East India Ltd. and other group cases, within meaning of s. 158BD. Issue notice under s. 158BD for block period asst. yrs. 1987-88 to 1997-98 (upto 29th Feb., 1997). Sd/- Kamlesh C. Varshney Dy. CIT, CC- 6 , New Delhi" contention of learned counsel for assessee before us was as follows. satisfaction note within meaning of provisions contained in s. 158BD of Act has to be recorded in case of searched person and, as on facts of instant case since satisfaction note has not been recorded in case of searched person, AO initiated proceedings under s. 158BD of Act did not have valid jurisdiction either to initiate proceedings or frame assessment. Reliance in this regard was placed on decision in case ofManish Maheshwari vs. CIT (2007) 208 CTR (SC) 97 : (2007) 289 ITR 341 (SC).Further reliance was also placed on decision of Chandigarh Bench of Tribunal in case ofKishore Rai, Balwant Rai & Ors. 17. We have considered submission of learned counsel for assessee. decision in case ofManish Maheswari (supra) lays down requirement of recording satisfaction. further requirement of recording satisfaction in case of person searched especially when AO of person searched and person proceeded against under s. 158BD is one and same person is not contemplated in said judgement. decision of Chandigarh Bench of Tribunal deals with case where there was considerable delay in recording reasons under s. 158BD i.e. after lapse of considerable time between conclusion of assessment in case of person who was subject to search under s. 132 and time of recording reasons in case of t h e other person proceeded against under s. 158BD. Both cases are therefore clearly distinguishable from facts of present case. On reasons recorded in present case, which has been reproduced in para 1 6 , we are satisfied that requirements of s. 158BD are fully satisfied. We therefore reject argument of learned counsel for assessee on this issue. 18. On merits of various additions made by AO, there are basically three additions. first addition challenged in this appeal is addition of Rs. 12, 6 ,000 made by AO. facts relevant for adjudication of this issue are as follows. From seized documents, as mentioned in reasons for proceeding under s. 158BD against assessee, it was noticed that assessee along with other co-owners acquired property at South Extension, New Delhi. As per sale deed seized during course of search in case of M/s Mid East India Ltd., H-1, Zamrudpur Community Centre, Kailash colony, New Delhi (Annex. A-42, 4 6 and AA-45), details of consideration paid during F.Y. 1994-95, other than stamp duty and other charges were as under. Particulars Amount Smt. Natasha Singh 8,50,000 Sh. J.K. Singh 8,50,000 Smt. Rita Singh 8,50,000 Ms. Shipra Singh 8,50,000 Sh. J.K. Singh, HUF 9,00,000 M/s 21st Century Fin. Ltd. 7,00,000 50,00,000 As per seized document sum of Rs. 90 lacs had been paid over and above consideration stated in sale deed. Mr. J.K. Singh, one of co- owners of property surrendered Rs. 8 lacs of cash payment in his block return. assessee was confronted as to why cash payment of Rs. 90 lacs on proportionate basis should not be added as unexplained investment made by assessee. assessee in reply submitted that payment was made as per sale deed only. AO held that in case of other co-owners, additions have already been made on account of cash payment in their respective block assessments. That assessee failed to explain source of investment hence, provision of s. 132(4A) of IT Act are relevant. That one of unaccounted receipt seized mentions full consideration. letter of Shri. R.K. Gupta seized, also supports fact that Rs. 90 lacs is paid in cash. AO held that concrete evidences were available in seized documents that in addition to Rs. 50 lacs by cheque, Rs. 90 lacs in cash were paid for this property. Accordingly, AO held that Rs. 90 lacs was paid for this property over and above apparent consideration. assessee s share of this amount was determined at Rs. 90 lacs x 7/50 = Rs. 12, 6 ,000 . This amount was held as unexplained investment and was added to income of assessee as undisclosed income relating to asst. yr. 1995-9 6 . 19. On appeal by assessee, CIT(A) confirmed order of AO, hence present ground of appeal by assessee before Tribunal. 2 0 . learned counsel for assessee submitted that assessee specifically requested AO to summon sellers of property for examination by AO vide letter dt. 31st July 2001, but AO failed to do so and made impugned addition. It was submitted by him that evidence found in course of search was not conclusive. burden of proving that assessee made investments which is not recorded in books of accounts is on AO and that AO had not discharged his burden in this regard. Reliance was placed by learned counsel for assessee on decisions in case ofCIT vs. Naresh Khattar (HUF) (2003) 183 CTR (Del) 317 : (2003) 2 6 1 ITR 66 4 (Del). 21. learned Departmental Representative relied on order of Revenue authorities. In particular it was submitted that Court should take note of clinching evidence of investment not recorded in books found at time of search. It was also submitted that Court should judge issue keeping in mind human probabilities and realities of life where such payments are not unusual. Reliance was placed by him on decision of Hon ble Supreme Court in case ofSumati Dayal vs. CIT (1995) 125 CTR (SC) 124 : (1995) 214 ITR 801 (SC). 22. We have considered rival submissions. From seized document p. 12 of Annex. AA-84 (party A1) which was letter dt. 24th Aug., 1994 from R.K. Gupta, employee of group company to Smt. Rita Singh, managing director of company, it was noticed that there was reference to payment of Rs. 90 lacs by cash in connection with purchase of shop at South Extension. This was apart from Rs. 50 lacs paid by cheque. Page 11 of Annex. AA-84 was receipt for Rs. 8 lacs by cash wherein sale consideration for shop was mentioned as Rs. 1.40 crores. Smt. Rita Singh was co-owner of this property. Mr. J.K.Singh, another co-owner of property surrendered Rs. 8 lacs as cash p i d outside books of accounts. In circumstances there wasprima facieevidence to show that some investment over and above what was recorded in books had been made in purchase of property viz., shop at South Extension. From seizure of above documents and disclosure by J.K.Singh, co-owner of property it cannot be concluded that assessee also made investment in purchase of property over and above what is recorded in his books of accounts. AO ought to have summoned sellers and examined them as requested by assessee. AO should have also confronted assessee regarding surrender made by other co-owners. We deem it fit and proper to remand this issue to AO for fresh consideration in light of observations made as above. AO will be at liberty to make such enquiries as may be necessary and assessee will also be at liberty to let in such evidence as they consider necessary. relevant ground of appeal of assessee is treated as allowed for statistical purpose. 23. second addition challenged in this appeal is addition of Rs. 22,20,000 made by AO. facts relevant in this regard are as follows. We have already noticed that there was search and seizure operation carried out at residence of directors and at business premises of M/s Mesco Group. In appraisal report prepared in case of group by authorised officers who conducted search, it was mentioned that promoters/directors of group had purchased shares of Mid East India Ltd. (which was also one of group companies) in name of various residents of Village Hayatnagar, Tahsil Hapur, Dt. Ghaziabad. This village is native village of J.K. Singh, one of promoters/directors of Mesco Group. It was noticed that shareholders of M/s Mid East India Ltd. having folio Nos. 29 to 51 were having sequential addresses of Village Hayatnagar. Occupants of house No. 1 to house No. 80 of Village Hayatnagar had been allotted 500 to 1,000 shares of M/s Mid East India Ltd. In all there were 222 persons belonging to Hayatnagar Village to whom shares were allotted. number of shares were between 500 to 1,000 shares. first conclusion of authorised officers conducting search was that these shareholders were benami shareholders and real owners were promoter/directors of company. These shares have been transferred to M/s 21st Century Finance Ltd. (the assessee), on one day i.e. 11th Sept., 1992. It appears that local enquiries have been made in Village Hayatnagar and there were no such house numbers as in shareholders registers of Mid East India Ltd. Based on aforesaid appraisal report AO concluded that shares allotted to 222 persons @ 1,000 shares to each person were unexplained investments made by assessee and addition of Rs. 22.20 lakhs was made by AO. AO has observed that assessee did not file any details o f opening stock, purchases, sales and closing stock and details of stock-in- tr d e to explain source of purchase of these shares, and, therefore, aforesaid addition was being made. 24. On appeal by assessee CIT(A) confirmed order of AO. 25. Before us, learned counsel for assessee submitted that conclusions of AO were mere reproduction of appraisal report. It was also submitted that conclusion in appraisal report was that shares were held by promoters in benami names of some persons and that conclusion cannot lead to inference that assessee made unexplained investments in purchase of these shares. It was further submitted that for asst. yr. 1993-94 assessee had filed return of income as early as 30th March, 1995 wherein due disclosure had been made regarding purchase of these shares. In view of above it was submitted that enquiry regarding source of purchase of these shares was beyond purview of present block assessment proceedings. It was also submitted that in regular assessment n o addition has been made on account of such purchases. learned Departmental Representative however submitted that special auditors in their report have clearly pointed out several discrepancies under head "current liabilities" and balances of sister concern. It was also pointed out that liabilities" and balances of sister concern. It was also pointed out that investments as on 31st March, 1993 and 31st March, 1994 had varied considerably and this aspect could not be investigated further because of lack of providing information by group companies including assessee company. In circumstances learned Departmental Representative prayed that issue be remanded to AO so that AO can investigate all aspects and make appropriate addition in this regard. 2 6 . We have considered rival submissions. In our view, addition made by AO and sustained by CIT(A) is without any basis. conclusion that certain shares of Mid East India Ltd. were held in benami names of others by promoter, directors of company cannot give rise to any undisclosed income in hands of assessee. assessee had purchased these shares. These purchases had been duly reflected in books of accounts of assessee. purchases were effected on 11th Sept., 1992. In return filed for asst. yr. 1993-94 assessee claims to have disclosed all these transactions. Even in appraisal report, it has only been mentioned that shares were held in benami names by promoters, directors of company. There is no evidence to show that assessee made any unexplained investments in purchase of these shares. In fact even in order of assessment, there is no such complaint by AO. addition could not be made in block assessment, firstly for reason that there has already been disclosure of these transactions by assessee in regular returns of income filed prior to search. Secondly it has not been established that assessee failed to explain source with regard to investment made in purchase of these shares. In circumstances we are of view that addition deserves to be deleted and same is directed to be deleted. 27. third important issue that arises for consideration is validity of addition of Rs. 32 crores made by AO as undisclosed income of assessee. facts as they transpire from order of assessment are as follows. AO has referred to two aspects of case as transpired from documents found from course of search. first aspect was with regard to issue of fake shares by assessee. other aspect was regarding value of stock-in-trade of assessee. discussions on these two aspects were as follows. (a) Fake shares : In course of assessment proceedings AO confronted assessee with seized documents A2/O seized during course of search which gives details of shares of M/s Mesco Pharmaceuticals Ltd. held by various Mesco Group of companies, its directors etc. which had been pledged as security for various facilities extended to Mesco Group of companies by SIDBI and Federal Bank. details found were to effect that shares numbering 15,22,000 being shares of Mesco Pharmaceuticals Ltd., under certificate No. 45009 had been pledged both with SIDBI and Federal Bank Ltd. plea of assessee in this regard was that same shares could be pledged as security for different loans availed from two different parties. A O however held that assessee did not file any certificates from Federal Bank and SIDBI in this regard. In these circumstances AO presumed that one of certificates out of two certificates pledged with two financial institutions/banks was fake share certificate. (b) Stock in trade : We have already noticed that assessee is investment and finance company. In course of search document was seized which is B-8/A-14. Pages 39 and 38 of this seized document gave list of shares held by assessee in various sister concerns. details were as follows. No. of Scripts of Amount shares M/s Mid East (India) 66 1,24,18,320 Ltd. ,82,80,500 M/s Mesco 49,70,000 11,99,00,000 Pharmaceuticals Ltd. M/s Mesco Airlines 48,50,000 4,85,00,000 Ltd. M/s Mesco Exports 1,00,000 10,00,000 Ltd. M/s Mid East 4,00,800 80,1 6 ,000 Integrated Steels Ltd. M/s Dhana 30,000 30,00,000 Pharmaceuticals (P) Ltd. M/s Little Rome Ltd. 8,30,000 83,00,000 M/s Bokiyu Tanneries 81,900 8,19,000 Ltd. M/s Bharat Investment 20,000 2,00,000 & Finance Ltd. Total : 85,80,15,500 2 8 . Page 37 of very same annexure contained list of shares purchased by assessee from secondary market. These details were as follows. Scripts of Amount M/s Mid East (India) Ltd. 34,14, 6 8,133 M/s Mesco Pharmaceuticals Ltd. 4,3 6 ,81,359 M/s Mid East Integrated Steels Ltd. 54,24,945 M/s Bokiyu Tanneries Ltd. 12,18,033 Total 39,17,92,470 sales effected out of aforesaid shares purchased from secondary market were to tune of Rs. 4.17 crores and thus actual figure of purchases from secondary market was Rs. 35 crores. Thus total stock of shares s on 31st Dec., 1995 according to AO should have been Rs. 120 crores (85 crores + 35 crores). But as per balance sheet of 31st March, 199 6 stock in trade was Rs. 125.40 crores. AO therefore concluded that Rs. 5.40 crores was undisclosed income. (c)Further observations of AO : AO has observed that shares worth Rs. 85 crores held by assessee in its sister concern which have been referred to above were being held by assessee only with view to retain control over sister companies and therefore these shares should be considered as having been held by assessee only as investment and not as stock-in-trade of business of investment and finance. AO has also referred to fact that assessee did not produce any books of accounts before special auditor. AO has also referred to fact that since 1993, assessee has not even filed balance sheet and P&L a/c and other details with ROC. In circumstances AO concluded that assessee does not maintain proper books of accounts. (d)Final conclusion of AO : After referring to all aforesaid facts and observations AO made addition of Rs. 32 crores to cover aforesaid discrepancies. 28. On appeal by assessee CIT(A) confirmed order of AO. 29. Before us learned counsel for assessee submitted that there has been absolutely no basis for AO to come to conclusion that there was undisclosed income to extent of Rs. 32 crores which was required to be assessed in block assessment proceedings. He also drew our attention to appraisal report in case of Mesco Group of companies wherefrom AO has adopted above observationsverbatim. According to him AO has made aforesaid additions without any basis. It was submitted by him that in assessment of undisclosed income made under Chapter. XIV-B additions will have to be made only on basis of material found in course of search which disclosed that assessee has earned income which has not been disclosed. According to him observations made by AO in order of assessment do not reflect earning of any income by assessee and therefore there is no question of making any assessment of undisclosed income. learned Departmental Representative however submitted that AO has already given basis for addition to extent of Rs. 5.40 crores in order of assessment and to this extent he relied on order of AO. With regard to remaining sum of Rs. 25. 6crores he submitted that in course of search trial balance of M/s Mid East Integrated Steel Ltd. was found and as per this trial balance debit balance against group company was shown at Rs. 121 crores out of which debit balance of assessee company was Rs. 94.71 crores. remaining debits were in name of various directors of Mesco Group. However, in ledger of Mid East Integrated Steels Ltd., these balances stood reduced in case of directors of Mesco Group and it was increased in case of assessee from Rs. 94.71 crores to 121.12 crores. This difference of Rs. 2 6 crores and odd was rounded off to Rs. 25 crores and addition of Rs. 32 crores had been made by AO. It was therefore submitted by learned Departmental Representative that matter should be remanded to AO with view to enable AO to reappraise evidence and pass suitable orders bringing undisclosed income to tax. In this connection he also highlighted lack of co-operation and non-furnishing of required particulars by assessee both before AO as well as before special auditors. 30. We have considered rival submissions. At outset we are of view that AO has not even spelt out basis on which he has arrived at Rs. 32 crores as undisclosed income of assessee. As rightly contended by learned counsel for assessee documents found in course of search should firstly show that assessee had earned some income. Perusal of order of assessment shows that AO has not come to any conclusion as to how seized documents disclosed any income having been earned by assessee. question of disclosure of income would come only when there is firstly evidence to show that assessee earned some income. observations regarding fake share certificates are absolutely without any basis and are purely on surmises and assumptions. With regard to discrepancy in stock-in-trade as per balance sheet as on 31st March, 199 6 and stock of shares worked out by AO as on 31st Dec., 1995, we are of view that AO has not made any investigation with regard to transactions in intervening period between 31st Dec., 1995 to 31st March, 199 6 . Moreover, transactions as recorded in seized document show lesser investment in shares whereas balance sheet as on 31st March, 199 6 shows higher investment as stock-in-trade. As to on what basis AO came to conclusion that Rs. 5.40 crores is undisclosed income is not spelt out in order of assessment. As rightly contended by learned counsel for assessee AO has extracted selectively from appraisal report and has made addition without any basis. other general observations of AO in our view cannot be basis to make impugned additions. With regard to contention of learned Departmental Representative regarding discrepancy in debit balances shown against assessee company in seized trial balance of M/s Mid East Integrated Steels Ltd., we are of view that same has not even been referred to by AO in order of assessment. By placing reliance on some observations in appraisal report, argument put forth by learned Departmental Representative in appellate proceedings cannot be basis to sustain orders of Revenue authorities or to make order for remand of issue to AO for fresh consideration (be) permitted. request of learned Departmental Representative for remand of issue to AO in our view is therefore found to be not sustainable. We are therefore of view that addition of Rs. 32 crores made by AO has no basis. CIT(A) erred in confirming order of AO on this issue. We direct that said addition be deleted. 31. appeal of assessee is thus partly allowed. *** TWENTY FIRST CENTURY FINANCE LTD. v. DEPUTY COMMISSIONER OF INCOME TAX