1. This is an appeal filed by the assessee and is directed against the order of the Asstt. Commissioner of Income-tax, Circle I(i), Jalandhar dated 29-10-1996 under section 158BC(c) read with section 143(3) of the Income-tax Act, 1961 for the block period from 1-4-1985 to 10-10-1995. 2. We will first deal with the additional ground raised by the assessee, which reads as under:—

"That the Assessing Officer has grossly erred in estimating business Income on the basis of so-called returns for the earlier and succeeding years at Rs. 25,000. The Assessing Officer did not appreciate that no partnership firm was in existence in connection with assessment year 1986-87 and there was no justification in adding a sum of Rs. 25,000 in the total income and the addition made at Rs. 25,000 may be deleted."

3. As regards the admission of the additional ground of appeal is concerned, we find that the assessee has every right to raise this issue before the Tribunal. Furthermore, the present issue is relevant and vital just for the decision of the present appeal. We are also of the view that no further investigation is required while disposing of this additional ground. The Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. Commissioner Of Income Tax [1998] 229 ITR 383 held that:

"The Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the Income-tax authorities and having a bearing on the tax liability of the assessee."

In view of the ratio laid down by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), we have no hesitation to admit the additional ground raised by the assessee.

4. As regards the merits of the additional ground is concerned, Shri P.N. Arora, Advocate, the learned counsel for the assessee submitted before us that no return of income was filed by the assessee for the assessment year 1986-87 in the name of partnership firm M/s Faqir Chand Chaman Lal as there was no such partnership firm in existence, however, the Assessing Officer wrongly estimated the business income at Rs. 25,000 for the assessment year 1986-87. It was further submitted that for the assessment year 1986-87, the income of the firm M/s Faqir Chand Chaman Lal was assessed in the hands of Shri Faqir Chand in his individual capacity while making the assessment under section 158BC of the Income-tax Act, 1961 in the block assessment involving block period 1-4-1985 to 10-10-1995 because Shri Chaman Lal was doing the business in his individual capacity in the name of M/s Faqir Chand Chaman Lal. It was further submitted that the partnership firm came into existence only in the year, relevant to the assessment year 1987-88 and, therefore, the assessee filed the return for that assessment year. It was further stated that Form No. 11 alongwith the partnership deed was also filed on 30-3-1987 for granting registration to the partnership firm, which was duly signed by the partners. He referred to page No. 549 of the paper book filed by the assessee and stated that the same was received by the Department vide Receipt No. 488442 dated 30-3-1987. It was further stated that the assessee while filing the regular return of income for the assessment year 1987-88 instead of filing the copies of Form No. 11 by mistake filed another copy of Form No. 12 for continuation of registration. It was vehemently argued that the Assessing Officer was not justified in treating the Form No. 12 as valid document by ignoring the Form No. 11 which was filed as per law before the end of the financial year i.e. on 30-3-1987. It was argued that there was no partnership firm for the assessment years 1985-86 and 1986-87, as such, the Assessing Officer was not justified in estimating the income of the assessee at Rs. 25,000 for the assessment year 1986-87. In support of his aforesaid contention, the learned counsel for the assessee filed an affidavit of Shri Chaman Lal, which is placed at page No. 108 of the paper book. The contents of the aforesaid affidavit are reproduced hereunder:—

"Affidavit of Shri Chaman Lal, son of Shri Faqir Chand, aged 60 years, partner of M/s Faqir Chand Chaman Lal, Vill. & P.O. Apra, Teh. Phillaur, Distt. Jalandhar, at present at Amritsar. I take oath and solemnly depose as follows:—

1.That I am a partner in the partnership firm M/s Faqir Chand Chaman Lal, Vill. & P.O. Apra, Teh. Phillaur, Distt. Jalandhar.

2.That there was no partnership firm in existence during the period 1-4-1985 to 31-3-1986, relevant to assessment year 1986-87.

3.That the partnership firm M/s Faqir Chand Chaman Lal, came into existence with effect from 1-4-1986, relevant to assessment year 1986-87, with two partners namely: (1) Shri Chaman Lal with 60% share and (2) Shri Rakesh Kumar with 40% share and the partnership firm is still continuing.

Verification

I, Chaman Lal, the above named deponent do hereby affirm and declare that the facts stated above are true and correct to the best of my knowledge and belief.

Dated 14-9-2001."

He further submitted that the partnership firm came into existence on 1-4-1986 as per the partnership deed executed by the partners, Shri Chaman Lal and Shri Rakesh Kumar. For the aforesaid contention, he referred to page Nos. 109 and 110 of the paper book, which are copies of partnership deed.

4.1 In view of the above, it was argued that the partnership firm was not in existence for the assessment year 1986-87, as such, the Assessing Officer was not justified in estimating the income at Rs. 25,000 for the assessment year 1986-87.

4.2 In his rival submissions, Shri S.J. Singh, the Sr. D.R. submitted that the partnership firm was in existence because the assessee has filed Form No. 12 alongwith the return for the assessment year 1986-87, which evidently proved the assessee’s intention to continue the status as partnership firm. It was also stated that the advance-tax was deposited by Shri Chaman Lal in the status of registered firm. He referred to pages 4 to 7 of the D.R.’s paper book. It was further submitted that if there was, in fact, a new partnership firm then the assessee should have filed the fresh partnership deed before the Assessing Officer but no such fresh partnership deed alongwith the return for the assessment year 1986-87 was filed. It was further submitted that as per Rule 23 of the Income-tax Rules, 1962 where there is any change or changes in constitution of the firm or the share of the partners during the previous year, the assessee is required to file application in Form No. 11A which should be accompanied by instrument evidencing the partnership as in existence during the previous year along with application, further duplicate copy of the partnership deed may be attached with the application, if for sufficient reasons the original instrument could not be produced before the Assessing Officer for registration of the firm. It was argued that no such action has been taken or proved to have been taken for the assessment year 1986-87 by the assessee and as such there was no change in the constitution of the firm in existence which was in continuation from the assessment year 1984-85. It was also stated that the assessee has not filed any dissolution deed for the assessment year 1985-86 as such the original partnership firm which was assessed for the assessment year 1984-85 was in existence during the year, relevant to the assessment year 1986-87. Reliance was placed on the decision of the Hon’ble Kerala High Court in the case of Commissioner Of Income-Tax v. Diza Electricals. [1999] 238 ITR 924 ¹ and also on the decision of the Hon’ble Bombay High Court in the case of CIT v. Star Andheri Estate [1994] 208 ITR 573². It was further stated that the status of the assessee for the assessment years 1985-86 and 1986-87 has been claimed as individual and no change was made by the Assessing Officer while processing these returns filed by Shri Chaman Lal under section 143(1) of the Act for the reasons that the Assessing Officer is not empowered to make change in the status of the assessee while processing the return under section 143(1). Reliance was placed on the decision of the Hon’ble Kerala High Court in the case of CIT v. K.V. Mankaram & Co. [2000] 245 ITR 353 ³. It was further stated that sales-tax licence No. 27546212 was issued by the Excise & Taxation Department, Goraya in the name of the firm M/s Faqir Chand Chaman Lal, Apra on the basis of the partnership deed dated 11-2-1981, as such the partnership firm was in continuation since 1981.

4.3 In view of the above, it was submitted that the claim of the assessee regarding change in the status before the Income-tax Department for the assessment year 1986-87 was just a manipulation to get the relief from the income-tax liability. Accordingly, it was submitted that the status of the assessee has rightly been considered by the Assessing Officer and claim of the assessee is liable to be rejected.

4.4 In his rejoinder, Shri P.N. Arora, Advocate, the learned counsel for the assessee, submitted that the Department itself considered the income of the assessee-firm M/s. Faqir Chand Chaman Lal for the assessment years 1986-87 and 1987-88 in the hands of the individual Shri Chaman Lal while passing the order under section 158BC of the Act. It was further stated that the aforesaid order in the case of Shri Chaman Lal was a subject-matter of the assessee’s appeal before the Tribunal and the Tribunal vide its order for the block period 1-4-1985 to 10-10-1995 in the case of Chaman Lal v. Asstt. CIT [IT (SS) Appeal No. 27 (Asr.) of 1996, dated 25-2-2002] affirmed the action of the Assessing Officer in taking the income of the firm M/s. Faqir Chand Chaman Lal, which was shown as sole proprietory business of Shri Chaman Lal for the assessment years 1985-86 and 1986-87, which was duly accepted by the Department under section 143(1) also. A copy of the order was also filed before us.

4.5 In view of the above, Shri P.N. Arora, Advocate, the learned counsel for the assessee, submitted that there was no alleged partnership firm during the assessment years 1985-86 and 1986-87.

5. After considering the rival submissions, we find that there was a partnership firm namely M/s. Faqir Chand Chaman Lal in having the sales-tax licence No. 27546212, which was issued on the basis of partnership deed dated 11-2-1981. In other words, the partnership firm came into existence on 11-2-1981. However, the period involved is prior period of block assessment, which is from 1-4-1985 to 10-10-1995. It is also noticed that no report was produced by the either party before us for the assessment years 1981-82, 1982-83, 1983-84 and 1984-85. However, it is noted from the record that for the assessment years 1985-86 and 1986-87, the department accepted the income of M/s. Faqir Chand Chaman Lal as sole proprietory business of Shri Chaman Lal, which fact is apparent from the assessment order for the block period 1-4-1985 to 10-10-1995 in the case of Chaman Lal ( supra). Furthermore, the Tribunal, vide its order dated 25-2-2002 in the case of Chaman Lal (supra) has confirmed the action of the Assessing Officer. In other words, the assessment framed in the case of Chaman Lal (supra) has been affirmed which included the assessment year 1986-87. On the direction of this Bench of the Tribunal, an affidavit dated 16-4-2002 was filed by the Assistant Commissioner of Income-tax, Phagwara Range, Phagwara wherein it has been admitted that for the assessment years 1985-86 and 1986-87 Shri Chaman Lal filed returns in the capacity of individual as proprietor of M/s. Faqir Chand Chaman Lal, Apra. Thus, it is clear that no partnership firm in the name of M/s. Faqir Chand Chaman Lal, Vill. & P.O. Apra was in existence for the assessment year 1986-87. It is also relevant to point out that the department accepted Form No. 11 on 30-3-1987 in the name of M/s. Faqir Chand Chaman Lal in the status of partnership firm. Admittedly, Form No. 11 is required to be filed by the assessee, who starts its business in the status of partnership firm. In other words, for the first year of the assessment, Form No. 11 is required to be filed before the end of the financial year. In the instant case also, Form No. 11 was filed by the assessee on 30-3-1987, which was received by the department vide receipt No. 488442 dated 30-3-1987 (copy is available at page 564 of the paper book filed by the assessee). It is also mentioned in the aforesaid receipt No. 488442 that partnership deed was filed along with Form No. 11 for the assessment year 1987-88. Shri S.J. Singh, the ld. Sr. D.R. pointed out that the assessee had filed Form No. 12 on 28-7-1987 along with the return of income. According to him, it means that the firm was in existence during the assessment year 1986-87. However, the learned counsel for the assessee categorically submitted that inadvertently counsel for the assessee had filed Form No. 12 along with the return of income instead of copy of Form No. 11. In our view, there is merit in the above contention of the learned counsel for the assessee. In the instant case, it is apparently clear that the assessee filed Form No. 11 for the assessment year 1987-88 only and also the department has accepted by way of affidavit dated 16-4-2002 that for the assessment year 1986-87, the income of the firm M/s. Faqir Chand Chaman Lal, Apra was declared by Shri Chaman Lal in his individual capacity.

5.1 On the basis of the above facts, we are of the opinion that the income of the same firm cannot be assessed in two hands and when the Department had already accepted the income of the firm M/s. Faqir Chand Chaman Lal in the hands of Shri Chaman Lal even in the block assessment under section 158BC for the block period 1-4-1985 to 10-10-1995, i.e., same block period, which is involved in the present case, it cannot be considered again the income of partnership firm for the assessment year 1986-87.

5.2 In view of the above discussion, we are of the view that the Department has miserably failed to establish that there was partnership firm M/s. Faqir Chand Chaman Lal in existence during the period, relevant to the assessment year 1986-87. We may also add here that there is no merit in this contention of the learned Sr. D.R. that advance-tax was deposited in the status of registered firm. On perusing the copies of advance-tax challans for the assessment year 1986-87 (placed at pages 4 and 5 of the department’s paper book), it would be clear that the name of the assessee has been mentioned as ‘Chaman Lal’. In the column of address, it has been mentioned "C/o Faqir Chand Chaman Lal, Apra" and even the Permanent Account No. has been mentioned as F/SC. At the time of hearing of appeal, the learned Sr. D.R. could not throw any light that Permanent Account No. mentioned in the aforesaid challans was of the firm M/s. Faqir Chand Chaman Lal and not of Shri Chaman Lal, individual. In that view of the matter, it would be held that the assessee did not deposit the advance-tax for the assessment year 1986-87. In other words, the documents relied upon by the learned Sr. D.R. were related to Shri Chaman Lal, individual and not to the partnership firm M/s. Faqir Chand Chaman Lal.

5.3 Considering the totality of the facts and the circumstances of the case as discussed above, we are of the view that the Assessing Officer was not justified in estimating the income of Rs. 25,000 for the assessment year 1986-87 in the hands of the assessee when there was no partnership firm in existence for that assessment year. Accordingly, we delete the addition made by the Assessing Officer and as such additional ground raised by the assessee is allowed.

6. Now, we deal with the main grounds of appeal.

6.1 Ground No. 1 is general in nature and hence no specific findings are called for.

7. Ground No. 2 reads as under:—

"2. That the ACIT has wrongly taken Rs. 6,15,000 as undisclosed income from pawning business for the assessment year 1986-87."

7.1 The facts relating to this issue, in brief, are that the Assessing Officer observed in the impugned order that the assessee had engaged himself in pawning business since 1981 but no information regarding investment made in that business had been furnished by the assessee. The Assessing Officer further noticed that in the documents marked as A-2/3, A-2/6, A-2/7, A-2/8 and A-2/9 entries had been made in respect of pawning business and the total of investments was of Rs. 14,15,445 as per following details :

The Assessing Officer on the basis of aforesaid observation opined that the total investment of the assessee upto 31-3-1985 in the business of pawning was at Rs. 8,00,000. He, therefore, considered the remaining amount of Rs. 6,15,447 pertaining to the year, relevant to the assessment year 1986-87 and as such the amount of Rs. 6,15,000 in round figure was taken as investment of the assessee outside the regular books of account and accordingly the addition was made for the assessment year 1986-87.

7.2 Before us, Shri P.N. Arora, Advocate, the learned counsel for the assessee, submitted that the Assessing Officer had not given proper opportunity of being heard while making the addition on the basis of seized documents marked as A-2/3, A-2/6 and A-2/9, it was stated that the Assessing Officer asked the explanation of the documents marked as A-3, A-6, A-7 and A-8 vide notice dated 6-5-1996 and in para No. 3 the information called for was mentioned as follows :—

"3. A-3, A-6, A-7 and A-8 are bahis indicating Pawning Business carried out by the assessee firm wherein advances appear to have been made against some security or without any security on a large scale. Please explain source of all such advances made and interest received on such advances made. Also give details regarding each advance along with name and address of the person to whom such advance is made. The above may also be explained in the light of Pawning Slips inventorised from Pages 13 to 58 of A-9 (Residence) which are in connection with A-3, A-6, A-7 and A-8."

It was further stated that in response to the aforesaid enquiries, the assessee vide letter dated 18-5-1996 stated that the entries in those documents i.e. A-3, A-6 and A-7 were related to the receipt of gold to the karigars for repair work and were duly entered in the books of account and the entries in the documents marked A-9 were related to the advances given to the customers long back. Accordingly, it was submitted that the Assessing Officer had not asked any question regarding the documents marked as A-2/3, A-2/6 to A-2/9 and as such no proper opportunity was given to the assessee while coming to the conclusion that there was an investment of Rs. 14,15,447 in the pawning Business. It was further stated that the Assessing Officer had not appreciated the nature of the documents seized because the documents seized i.e. A-2/3, A-2/6 to A-2/9 and A-3, A-6, A-7 and A-9 were different and separate documents. It was explained that in the documents A-2/6 to A-2/8 the entries were related to the carry forward from one Ledger bahi to another Ledger Bahi from time to time and as such represented the repetition of old Bahis. Therefore, the Assessing Officer while making the addition on the basis of those Bahis had also repeated the entries. It was further stated that while making the addition of Rs. 6,15,000, the Assessing Officer never gave any opportunity of being heard to the assessee. It was vehemently argued that the partnership firm was never in existence in connection with the assessment year 1986-87 because the firm came into existence on 1-4-1986, as such the period was relevant to the assessment year 1987-88. He drew our attention towards page Nos. 109 and 110 of the paper book, which is the copy of partnership deed dated 1-4-1986.

7.3 On the basis of above explanation, the learned counsel for the assessee urged that the addition may be deleted.

7.4 In his rival submissions, Shri S.J. Singh, the learned Sr. D.R. submitted that the Assessing Officer before making those additions has given a fair and reasonable opportunity to the assessee to explain the entries mentioned in the seized documents marked as Annexures A-2/3, A-2/6, A-2/7 and A-2/8 and total of the investment on the basis of entries made in those documents was Rs. 14,15,445. As regards to the documents marked as A-2, A-4 and A-5 are concerned, the learned Sr. D.R. submitted that those were order book of customers, which were mainly cancelled or not executed. Therefore, those documents were not related to the issue involved in the Pawning Business. In that terms, it was submitted that there was no force in the arguments of the learned counsel for the assessee that the documents on the basis of which addition has been made were different documents. It was further stated that during the course of search, jewellery was neither found at the residence or from the business premises of the assessee, which clearly indicated that the assessee was doing the business previously and, therefore, the Assessing Officer was justified in estimating the investment of the assessee upto 31-3-1984 at Rs. 8 lakhs and after giving credit for the same amount the remaining amount of Rs. 6,15,447 was rightly treated as investment of the assessee in the first year of block period.

7.5 After considering the rival submissions, we are of the view that there is merit in this contention of the learned counsel for the assessee that the Assessing Officer has not properly afforded a due and reasonable opportunity of being heard to the assessee in the matter. On perusing the questionnaire dated 6-5-1996, it would be clear that the documents confronted to the assessee were marked as Annexures A-3, A-6, A-7 and A-8 while the addition has been made on the basis of documents marked as A-2/3 to A-2/6 and A-2/8. It is relevant to point out that A-3, A-6, A-7 and A-8 are the copies of receipts of gold to the karigars while the documents A-2/3, A-2/6 to A-2/9 are related to the advances given to the different persons. It was the contention of the learned counsel for the assessee that few of the entries were repeated, our attention was drawn towards page Nos. 283 to 318 of the paper book and it was stated that the dates mentioned therein, were 7-8-1982 to 14-11-1994 (refer page 284) and 26-6-1984 to 21-1-1993 (refer page 286). Similarly, on other pages, dates mentioned are beyond the period 31-3-1986, although certain amounts are reflected against the names of the persons mentioned in those documents. Therefore, it seems that the aforesaid documents were related to the pawning business but it was the main grievance of the assessee that those documents were not confronted to the assessee on the basis of which addition was made. In that view of the matter, we are of the opinion that no proper opportunity of being heard to the assessee was granted by the Assessing Officer. On this score alone, addition of Rs. 6,15,000 was uncalled for and deserves to be deleted. At the same time, we have already decided the additional ground (supra) and in view of the detailed findings given therein, we are of the opinion that no addition can be made for the assessment year 1986-87 on account of pawning business in the hands of the assessee firm since there was no business conducted by the assessee in that year, because no partnership firm was in existence. On this score also, the addition is unwarranted, uncalled for and bad in law. In view of the above, we delete the addition of Rs. 6,15,000 made by the Assessing Officer.

8. Ground No. 3 reads as under:—

"3. That the interest on Pawning Business has wrongly been taken at Rs. 2,00,000 each for the assessment years 1986-87 to 1995-96 and Rs. 1,00,000 for the assessment year 1996-97 on the most flimsy grounds."

8.1 As regards to the addition made in the assessment years 1986-87 to 1995-96 amounting to Rs. 2 lakhs each, the Assessing Officer has stated that the assessee earned the interest from Pawning Business and the total investment in this business in the year 1985 was Rs. 14,15,000. It was further noted by the Assessing Officer that the assessee had been charging interest @ 2% per month and the annual interest on the total amount worked out to Rs. 3,40,000 p.a. approximately. The Assessing Officer further noted that the entire amount could not be said to have been earned during the whole of the year. He, therefore, after giving credit for the amounts which were not given on interest during the year estimated the interest at Rs. 2 lakhs per annum for the aforesaid assessment years while for the assessment year 1996-97, the Assessing Officer opined that the period covered was of about 6 months and as such the interest was estimated at Rs. 1 lakh. The learned counsel for the assessee submitted before us that the Assessing Officer had made an addition of Rs. 20 lakhs on account of so-called interest on the said Pawning Business starting from assessment years 1986-87 to 1995-96 and other six months of assessment year 1996-97. It was vehemently argued that there was no basis or there was no such documents seized by the Department, which could justify that the assessee earned interest of Rs. 20 lakhs, as such, the addition made by the Assessing Officer was based on conjectures and surmises but under the law no such addition can be made in the assessment claimed for the block period on the basis of supposition and estimation. It was further stated that no document whatsoever was found during the search on the basis of which the Assessing Officer could arrive at the conclusion that the interest was charged at the rate of 2 per cent per annum. Accordingly, it was stated that the addition made was not justified as the same was not based on the appreciation of proper facts because in the raid cases no addition can be made unless there is concrete and positive evidence found at the time of search and seizure. Alternatively, it was submitted that the interest income estimated by the Assessing Officer was very high and excessive. Reliance was placed on the following case laws:—

(1)Commissioner Of Income-Tax v. Mrugesh Jaykrishna [2000] 245 ITR 638 ¹ (Guj.)

(2)Commissioner Of Income-Tax, Delhi-Ii v. Ravi Kant Jain. [2001] 250 ITR 141 ² (Delhi)

(3)Asstt. CIT v. H.M. Sathyanarayana Setty [2001] 71 TTJ (Bang.) 186

(4)Dolly Farms & Resort (P.) Ltd. v. Dy. CIT [2000] 74 ITD 147 (Delhi) (TM)

(5)CIT v. Shambhulal C. Bachkaniwala [2000] 108 Taxman 515 (Guj.)

(6)V.V.S. Alloys Ltd. v. Asstt. CIT [2000] 68 TTJ (All.) 516 (sic)

(7)Prarthana Construction (P.) Ltd. v. Dy. CIT [2001] 70 TTJ (Ahd.) 122³.

8.2 In his rival submissions, Shri S.J. Singh, the learned Sr. D.R. submitted that the Assessing Officer came to the conclusion that the assessee was charging interest at the rate of 2 per cent per month after perusing the various seized documents and the assessee had not given any explanation to the Assessing Officer at the time of assessment proceedings. It was further stated that the assessee himself admitted in para 3 of its explanation letter dated 18-5-1996 that the advances were given to the customers but no details had been furnished in regard to the total amount of advance. It was further stated that the assessee admitted that in most of the cases, interest was not received, as such, the assessee was engaged in the business of advancing amounts on interest. Therefore, the Assessing Officer was justified in estimating the interest at the rate of 2 per cent p.m. earned by the assessee on the advances of Rs. 14,15,000. It was further submitted that the Assessing Officer had already given due and reasonable credit to the assessee because full amount of interest was worked out at Rs. 3,40,000 per annum while the addition has been estimated at Rs. 2 lakhs per annum only for each of the assessment years 1986-87 to 1995-96. Therefore, the Assessing Officer was also justified in estimating the addition of Rs. 1 lakh for the assessment year 1996-97 because the period involved in that year of about 6 months.

8.3 In view of the above, it was submitted that the Assessing Officer was justified and reasonable in making the additions. Therefore, no further relief is to be given to the assessee.

9. After considering the above-mentioned submissions of the learned counsels for both the parties, we are of the view that the Assessing Officer while making the addition, was not sure regarding the amount invested by the assessee in Pawning Business. On the one hand, he calculated the amount of interest at Rs. 3,40,000 per annum and on the other hand, the addition has been estimated at Rs. 2 lakhs. In other words, the entire exercise done by the Assessing Officer was merely based on conjectures and surmises. However, he had no basis to estimate the interest income. As regards the addition for the assessment year 1986-87 is concerned, the same is not tenable in view of our findings given in respect of ground Nos. 2 and 3 and additional ground (supra), as we have already held that there was no partnership firm in existence in that year. In that view of the matter, no addition was called for in the assessment year 1986-87.

9.1 At this stage, we may also add that as regards to other years also, no addition is called for because there is no material on record for the basis on which it could be said that the Assessing Officer was justified in his action. It is well settled that the provisions relating to search and seizure are intended to unearth the hidden or undisclosed income or property and bring it to taxation net. It is also not in dispute that the objective of Chapter XIV-B is to get hold evidence having bearing on the tax liability of a person which the said person is seeking to withhold from the Assessing Officer, but the scheme of Chapter XIV-B does not give power to the Revenue to draw presumption in regard to the undisclosed income. It is also well settled proposition that the presumption howsoever strong cannot substitute evidence and if there is no direct nexus on the point, no addition in block assessment can be made. In the instant case also, there was no evidence with the Assessing Officer in support of his contention that the assessee, in fact, earned the income by way of interest amounting to Rs. 2 lakhs each from the assessment years 1986-87 to 1995-96 and Rs. 1 lakh in the assessment year 1996-97. In the instant case, it is also not in dispute that the undisclosed income was worked out by the Assessing Officer on an estimated basis but in a block assessment generally estimated additions cannot be justified. In that view of the matter, we are of the view that the Assessing Officer was not justified in making the addition on the basis of estimate only. We, therefore, delete the same.

10. The next ground agitated by the assessee relates to taking of investment in Pawning Business at Rs. 58,114 each for the assessment years 1989-90 to 1996-97. For making this addition, the Assessing Officer observed that the seized documents marked as A-2/9 had shown that the assessee made an investment to the tune of Rs. 4,64,908 during the years 1988 to 1996. He, therefore, took the amount of Rs. 4,64,908 as undisclosed investment of the assessee in Pawning Business and added the same as undisclosed income for the assessment years 1989-90 to 1996-97 at Rs. 58,114 for each year.

10.1 Before us, Shri P.N. Arora, Advocate, the learned counsel for the assessee, submitted that the Assessing Officer has relied on the seized documents A-2/9 marked ‘H’ but the same was not confronted to the assessee, however, an opportunity was allowed for Annexure A-9, which represented the vouchers showing jewellery received from the customers for making/conversion to new jewellery or job basis. He referred to page Nos. 160 to 194 of the paper book. It was further submitted that the Assessing Officer never gave any proper and reasonable opportunity to the assessee to explain before making this heavy additions. In fact, no investment was made by the assessee in the Pawning Business outside the books of account and the Assessing Officer had not been able to place any material on record for justifying the addition, and, therefore, the same may be deleted. The learned counsel for the assessee further made the submissions in the following words:—

"1.That the Assessing Officer was in a great hurry to complete the block assessment and no proper opportunity of being heard was allowed before making this heavy addition.

2.That Assessing Officer did not disclose his mind at the time of completion of the block assessment, otherwise we would have explain the whole position.

3.That the additions have been repeated on the same items as it is evident from the chart referred to hereinabove.

4.That there is no positive document or paper which gives any positive or conclusive basis for making the addition.

5.That the Assessing Officer has not been able to substantiate the basis of additions made, which itself is based on conjectures, surmises and suppositions and it is inconsistent with the existing facts on the record and as such there was miscarriage of justice.

6.That no addition can be made on the basis of loose papers which do not convey anything and which are no worthy of reliance. As such, the addition made on the basis of conjectures, surmises and supposition may be deleted."

Reliance was placed on the following case laws:—

(1)Mrugesh Jaykrishna’s case (supra),

(2)Monga Metals (P.) Ltd. v. Asstt. CIT [2000] 67 TTJ (All.) 247¹,

(3)Commissioner Of Income-Tax v. Smt. Usha Tripathi [2001] 249 ITR 4 ² (All.),

(4)Dolly Farms & Resort (P.) Ltd.’s case (supra).

10.2 In his rival submissions, Shri S.J. Singh, the learned Sr. D.R. submitted that the Assessing Officer had made the addition of Rs. 4,64,908 for investment in Pawning Business on the basis of entries found on various loose sheets contained in Annexure A-2/9 during the years 1988 to 1995 and consequently made the addition of Rs. 58,114 for each year as undisclosed investment of the assessee in Pawning Business for the assessment years 1989-90 to 1996-97. It was further stated that the Assessing Officer for making the addition has taken into consideration for working out peak. It was argued that the assessee had been given sufficient opportunities to explain his case and furnish the details but the assessee never filed complete details before the Assessing Officer during the proceedings of the assessment. As such there was no alternative but to complete the assessment on the basis of the documents seized during the course of search and seizure operation. Thus, the Assessing Officer was justified in making the addition of Rs. 4,64,908.

10.3 After considering the rival submissions, we are of the view that the Assessing Officer has not given proper opportunity to the assessee to explain its case. In that view of the matter, we deem it proper to set-aside this issue to the file of the Assessing Officer and direct him to decide the issue afresh in accordance with law after giving proper and reasonable opportunity of being heard to the assessee.

11. The next ground i.e. ground No. 5 relates to estimating the profit at the rate of 10 per cent on the lobour/job work/ sale of gold and thereby making the addition of Rs. 5,62,410 during the assessment years 1991-92 to 1996-97. For making this addition, the Assessing Officer observed that the assessee’s Bahis marked as A-2/4 and A-2/5 had shown that the assessee’s total receipts/sales on account of job work/labour/sale of gold etc. during the period March, 1991 to March, 1995 came at Rs. 53,74,416. He further gave the details of receipts amounting to Rs. 53,74,416 as under:—

It has been further observed by the Assessing Officer that in the course of block assessment proceedings in another case enquiries were got made through the Inspector to find out the margin of profit earned on the receipts on account of labour/job work/sale of gold etc. and it was reported by the Inspector after making independent enquiries that not margin of profit in this line of business ranged from 10% to 13%. He, therefore, applied the net profit rate of 10% on the aforesaid receipts and as such the addition was calculated as per following details:—

In this manner, the addition of Rs. 5,62,410 was made.

11.1 Before us, Shri P.N. Arora, Advocate, the learned counsel for the assessee contended that the addition made by the Assessing Officer was without any basis. He further submitted that the Assessing Officer never gave any opportunity of being heard, before making this addition. It was clarified that the assessee had been showing income on the sales as well as on the job receipts and the details of the receipts was shown in all those years, which were as per following details :

Shri P.N. Arora, Advocate, the learned counsel for the assessee further contended that an estimated profit rate is not feasible in raid cases because the same can be done/applied in regular assessment. Reliance was placed on the following case laws:—

(1)Shambhulal C. Bachkaniwala’s case (supra),

(2)Jay Dee Fabrics Ltd. v. Asstt. CIT [IT (SS) Appeal No. 15 (Asr.) of 1997, dated 19-11-1999].

11.2 In his rival submissions, Shri S.J. Singh, the learned Sr. D.R. submitted that the Assessing Officer calculated figures of job work/labour work/sale of gold on the basis of documents seized/found during the course of search and the assessee never furnished any explanation to the entries made in the Annexures A-2/4 and A-2/5. Even then, the Assessing Officer categorically asked for evidence to this effect in his questionnaire dated 30-8-1996. It was further submitted that there was no other alternative left with the Assessing Officer but to estimate the undisclosed income of the assessee by applying the net profit rate when the assessee fails to produce books of account and supporting vouchers. Accordingly, it was submitted that under these circumstances, the Assessing Officer rightly applied the net profit rate of 10% on the total receipts shown by the assessee. Therefore, the action of the Assessing Officer was fully justified and liable to be upheld. Reliance was placed on the following case laws:—

(1)CIT v. C.J. Shah & Co. [2000] 246 ITR 671 (Bom.),

(2)Samrat Beer Bar v. Asstt. CIT [2000] 75 ITD 19 (Pune) (TM),

(3)Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune) (TM),

(4)Pioneer Publicity Corpn. v. Dy. CIT [2000] 67 TTJ (Delhi) 471 ,

(5)Ideal Plot Vikri Kendra v. Asstt. CIT [2000] 74 ITD 117 (Pune) (TM).

11.3 After considering the rival submissions, and perusing the impugned order, it would be clear that the Assessing Officer, while adopting net profit rate at 10% relied on the enquiries made by the Inspector in another case. However, identity of the said another case was not disclosed to the assessee. It is also relevant to point out that in the year involved in this issue, the assessee was regularly filing the returns and showing the profit also but the Assessing Officer has not discussed the past history of the case. It is also one of the claims of the assessee that the receipts from the sales as well as from job and labour charges were shown by the assessee in the regular returns of income filed before the Department. It seems that the Assessing Officer while computing the receipts from sales/job works/labour charges amounting to Rs. 56,24,100 has not given any benefit to the amounts already shown by the assessee during the course of filing of regular returns of income. It is also noticed that the Assessing Officer while applying the net profit rate of 10% has not given any basis. We, therefore, deem it appropriate to restore this issue back to the file of the Assessing Officer and direct him to consider the net profit declared by the assessee in the regular assessments, in case, if any, addition is to be made on the amount of undisclosed sale/job work/labour charges. We may add here that while calculating the undisclosed sales, if any, the Assessing Officer should give an opportunity of being heard to the assessee and also confront the documents in his possession, if any, he should also consider the figures of the sales etc. already disclosed by the assessee in the regular returns of income already filed for the relevant assessment years. Accordingly, this ground of appeal is disposed of.

12. Ground No. 6 reads as under:—

"6. That the addition of Rs. 4,959 for the assessment year 1996-97 on account of purchase from Babu Lal on 24-7-1995 is wrong and against facts on record."

For this addition, the Assessing Officer stated that G.S. II Register of the assessee had shown purchases of gold jewellery valuing at Rs. 4,959 from Shri Babu Lal on 24-7-1995 but the sale did not find place, although the same was recorded in the seized document. He, therefore, added the sum of Rs. 4,959 treating the same as undisclosed investments of the assessee for the assessment year 1996-97.

12.1 Shri P.N. Arora, Advocate, the learned counsel for the assessee, submitted that the seized documents marked as A-50 by the Department only shows that payment of Rs. 4,959 was made to Shri Babu Lal on account of purchases of gold chain weighing 11.40 grams. It was clarified that the purchase transaction was duly acknowledged vide receipt No. 5461 dated 24-7-1995 and the voucher was duly issued as required under the Gold Licence Act. Accordingly, it was submitted that this purchase item has duly been accounted for in the books of account maintained by the assessee and there was no basis for making the addition.

12.2 After considering the rival submissions, in the instant case, it is noticed that the Assessing Officer vide its letter dated 6-5-1996 asked the assessee vide para 6 as under:—

"6. A-50 is a purchase book of gold ornament pertaining to 3-12-1985 and 23-9-1995. The entries of this purchase book (business premises) with the G.S. 11 register that reveals that some of the entries recorded in the purchase book are not finding place in the G.S. 11 register vice versa. For instant the entry made on 24-7-1995 regarding purchase from Shri. Babu Lal has not been entered in the G.S. 11 register and is obviously an entry unrecorded. Please explain."

12.3 In response to that, the assessee vide its letter dated 18-5-1996, vide paragraph 6 submitted as under:—

"6. That A-50 is a purchase book of Gold ornaments. All the entries mentioned in your notice including that of dated 24-7-1995 are duly entered in the G.S. 11 register. The same can be verified."

12.4 From the above narrated facts, it is clear that the Assessing Officer has not properly appreciated the facts of the present case. He has also not considered the reply of the assessee dated 18-5-1996. We, therefore, think it appropriate to remand this issue also back to the file of the Assessing Officer with the direction to him to decide the issue afresh on merits in accordance with law after affording due and reasonable opportunity of being heard to the assessee.

13. Ground Nos. 7 and 8 read as under:—

"7. That credit for Rs. 1,00,000 surrendered during the block period was not given/allowed.

8. That the appellant request for the acceptance of the returned income by deleting the impugned additions made in the declared income of the assessee."

It seems that the assessee has surrendered a sum of Rs. 1 lakh and no credit has been given by the Assessing Officer while framing the block assessment. Shri P.N. Arora, Advocate, the learned counsel for the assessee, contended that credit should be given and further deduction should also be allowed. According to him, there was no question of adding the same in the total income of the assessee. We also restore this issue back to the file of the Assessing Officer with the direction to him to consider the assessee’s explanation and decide the same afresh in accordance with law. The Assessing Officer should consider the above submissions of the assessee while framing the de novo assessment.

14. No other point was argued or pressed before us.

15. For statistical purposes, the appeal is allowed partly.