Bansal Strips (P.) Ltd. v. Assistant Commissioner of Income-tax

1. As common issues are involved in these 9 appeals the same have been argued together by the common counsel of the assessees and the common departmental representative. We are deciding these appeals together for convenience.

2. These appeals, with the exception of IT(SS)A No. 312 (Delhi)/2005, have been filed by the assessees on 11-2-2005 against the orders of the learned CIT (Appeals)-I, New Delhi dated from 21-10-2004 to 1-11-2004 in the cases of the assessees in relation to orders under section 158BC for the block period 1-4-1995 to 11-9-2001. Appeal in IT(SS) A. No. 312(Del.)/2005 has been filed by M/s. Balaji Wires Pvt. Ltd. on 23-6-2005 against the order of the learned CIT (Appeals)-I, New Delhi dated 17-5-2005 in relation to the order under section 158BC for the block period 1-4-1995 to 11-9-2001.

3. The facts of the case leading to these appeals briefly are that search and seizure operations under section 132(1) of the Act were conducted at various residential and business premises of the above named group of assessees called Bansal group on 11-9-2001. Thereafter notices under section 158BC were issued and in response M/s. Bansal Wire Industries Ltd. declared an undisclosed income of Rs. 10 lakhs and Smt. Anita Gupta declared an undisclosed income of Rs. 9 lakhs in the block returns filed by them. The Assessing Officer has in the block assessment order made huge additions in every case and a substantial part thereof has been confirmed by the learned CIT(Appeals). One addition, which is common to 8 appeals, except in the case of Smt. Anita Gupta, relates to alleged unexplained payment of commission. The particulars of addition in this behalf are as follows :—

4. The basis for these additions is certain statements recorded by Dy. Director of Income-tax (Inv.), New Delhi after the completion of search proceedings on 12-9-2001. Dy. Director of IT recorded the statement of one Shri Ved Prakash Jain. During the course of statement recorded on 25-9-2001 Shri Ved Prakash Jain stated that he had made purchases of the value of Rs. 25 crores from various concerns of Bansal group out of which delivery of goods to the extent of Rs. 2-3 crores only was taken. For the balance goods of Rs. 22 to 23 crores no material/wire was purchased and only bills were issued. According to the statement Bansal group issued credit sale bills to the assessee. The assessee in turn showed sales made in cash of those goods; whereas physically nothing was purchased or sold. According to this statement Shri Jain received 0.5 per cent to 0.6 per cent Commision on account of such billing but after meeting expenses, the net profit to Shri Ved Prakash Jain was 0.1 per cent only. Balance amount was spent on telephone, conveyance, vehicles, accountant etc. Shri V.P. Jain further stated that the cash deposited by him in his bank account in the names of his concerns, such as Arihans Traders, Hindustan Wires etc. was the cash received by the assessee from Shri Arun Kumar Gupta. Shri Jain further stated that in reality Bansal group assessees made sales in cash to some other parties but the bills were issued in the name of the concerns belonging to Shri V.P. Jain. Shri Jain further stated that as on the date of statement he was required to issue cheques of Rs. 2-3 crores on account of outstanding credit purchases but he had no stock in hand, because these were merely bills and in reality no wire was purchased. The outstanding amount could be squared up only after cash was received from Shri Arun Kumar Gupta of Bansal Group. Later on Shri Ved Prakash Jain retracted from the statement recorded by DDIT (Inv.) on 25-9-2001. Thereafter the statement of Shri V.P. Jain was once again recorded on 14th December, 2001 when Shri Jain was cross examined by Shri Arun Kumar Gupta in the office of DDIT (Inv.) and thereafter re-examined by the DDIT. In the cross examination Shri Ved Prakash Jain stated that where the goods were directly sent to his customers the material was not physically received in the shop of Shri Ved Prakash Jain and Shri Jain only received the bills. He had earlier stated that no goods were physically sold and purchases in relation to the sales and purchases made by the customers through Shri Jain and the goods were directly delivered to the addresses of such customers. In relation to commission of 0.5 per cent to 0.6 per cent Shri Jain clarified that no commission was received from Bansal group and in the earlier statement he had used the term "commission" to denote his margin of profit on goods being re-sold to third parties. Shri Jain clarified that no cash was received from Bansal group but the goods/material received from various concerns of Bansal group was sold by him in cash and such cash was deposited in the bank. As on the date of search payment of goods amounting to Rs. 2 to 2.5 crores was outstanding. There was no stock with him physically because the stock in question had been delivered to the customers directly. In his re-examination the DDIT (Inv.) asked Shri Jain to furnish the mode and details of the transport used, to which Shri Jain replied that answer could be given only after consulting the records. Shri Jain denied his subsequent statement was an after thought. He also promised to furnish documentary evidence in support of the second statement. According to the Assessing Officer, search under section 132 as well as survey under section 133A were conducted in relation to the concerns controlled by Shri Ved Prakash Jain also. Those opera-tions revealed that no trading was done at large scale as shown by the parties. In fact the godown of one of the concerns, viz., Daulat Ram Deep Chand Jain was found locked and from local enquiries it was gathered that the same had remained locked for about 2-3 years; whereas its stock was found at other premises, such as, Phool Bhawan, Ajmeri Gate and at Aram Nagar, Paharganj business premises. According to the Assessing Officer search and survey operation thus, revealed that trading at such large scale, as claimed by the parties, was not carried out by the concerns of Shri Ved Prakash Jain. The retraction statement of Shri Jain was not substantiated, in as much as the particulars of the parties to whom goods were sold directly were not given. Shri Ved Prakash Jain and Shri Arun Kumar Gupta failed to give details of mode of transport used also. No documentary evidence in support of the explanation was furnished. In spite of repeated requests books of account were not produced by Shri V.P. Jain. It appeared that retraction statement was given by Shri V.P. Jain after realizing that his confession statement was likely to hurt him as well in his independent block assessment proceedings. The learned Assessing Officer, therefore, concluded that Shri Ved Prakash Jain was doing only billing for Bansal group. He received cash payments, which were deposited in account and thereafter cheques were drawn on that bank account in favour of Bansal group concerns. The learned Assessing Officer held that Shri Ved Prakash Jain received commission at the rate of 0.6 per cent in respect of the purchases shown to him by various group concerns. On that basis, the learned Assessing Officer made an addition of Rs. 30,62,459 in the following manner :

The above working relates to Bansal Strips Pvt. Ltd. The learned Assessing Officer made similar additions in other cases.

5. During the course of appeals before the learned CIT(Appeals) the assessees objected to the addition made on account of alleged unexplained expenditure in the shape of commission payments to Shri V.P. Jain. The assessee argued that during the course of search proceedings no evidence was found of any such bogus payments. The assessee pointed out that all the three statements of Shri V.P. Jain were at variance. Therefore, no conclusion could be drawn from the statements without there being corroborative evidence. The assessees had made genuine sales to the concerns of Shri Ved Prakash Jain in the ordinary course of business, as was evident from the sales-tax forms obtained from the concerns of Shri V.P. Jain. Such sales were duly reflected in the books of account of Shri V.P. Jain. Hence no addition was called for. The assessee also argued that under the provisions of Chapter XIV-B no additions could be made on supposition or assumptions. Reliance in this respect was placed on the decisions of the Tribunal in the case of Vinod Kumar Jain v. Asstt. CIT [2004] 1 SOT 352 (Delhi); Faqir Chand Chaman Lal v. Asstt. CIT [2004] 1 SOT 914 (Asr.) and K. Moidu v. Asstt. CIT [2002] 81 ITD 242 (Coch.) (TM), etc. The learned CIT(Appeals), however, held that Shri Ved Prakash Jain was not conducting business to the extent mentioned by him. No trading in wire was shown at any of the business premises. Since during the course of the search most of the business premises did not show any trading activity, the learned CIT(Appeals) agreed with the conclusions drawn by the Assessing Officer that trading at such a large scale was not conducted at the concerns of Shri V.P. Jain. The learned CIT(Appeals) took note of the fact that no evidence was furnished in support of the retraction statement. Addresses of the parties to whom goods were dispatched directly from Bansal group of industries were not enumerated. No material was produced during the course of post such enquiries. The learned CIT(Appeals) referred to question and answer No. 7 in the statement of Shri Ved Prakash Jain during the course of re-examination by the DDIT:—

"Q. No. 7 In the above circumstances why your second statement should not be treated as after thought.

Ans. I do not have any explanation for this. But I have told the facts."

That showed that Shri Jain had no evidence in support of his retraction. Although Shri Jain had retracted the original state- ment but from that evidentiary value of the original statement was not lost. The answers given in the original statement were direct and to the point and the clarifications given subsequently did not fit in relation to the language of the answers given in the original statement. Hence the statement given by Shri Jain in his cross examination was not trustworthy. The Assessing Officer had examined the matter from every aspect. If Shri Ved Prakash Jain was actually a trader he should have been in a position to give evidence in support of his contention. On this reasoning the learned CIT(Appeals) agreed with the finding of the Assessing Officer and upheld the addition of Rs. 30,62,459 in the case of Bansal Strips Pvt. Ltd. and similar additions in other cases.

6. During the course of hearing before us the learned counsel for the assessee argued that the learned CIT(Appeals) was not justified in relying upon the original statement of Shri V.P. Jain and ignoring his subsequent statements since the original statement was taken behind the back of the assessee and the subsequent statement was given during the course of cross-examination. During the course of search not an iota of material was found to support the theory of so-called unexplained expenditure incurred by various concerns of Bansal group. In the absence of any material found during the course of search, the whole issue fell outside the scope of block assessment proceedings under the provisions of section 158BC. In support of this contention the learned counsel relied upon the decision of ITAT in the case of Sunder Agencies v. Dy. CIT [1997] 63 ITD 245 (Mum.). He also relied upon the judgments in the case of CIT v. Dr. M.K.E. Memon [2001] 248 ITR 310¹ (Bom.), Commissioner Of Income-Tax v. Shambhulal C. Bachkaniwala [2000] 245 ITR 488 ² (Guj.); Commissioner Of Income-Tax v. (1) Vikram A. Doshi [2002] 256 ITR 129 ³ (Bom.). The learned counsel also relied upon various Tribunal decisions, such as Harakchand N. Jain v. Asstt. CIT [1998] 61 TTJ (Mum.) 223^4.; Jaya S. Shetty v. Asstt. CIT [1999] 69 ITD 336 (Mum.); Dolly Farms & Resort (P.) Ltd. v. Dy. CIT [2000] 74 ITD 147 (Delhi) (TM); Essem Intra-Port Services (P.) Ltd. v. Asstt. CIT [2000] 72 ITD 228 (Hyd.); Chitra Devi v. Asstt. CIT [2002] 77 TTJ (Jodh.) 640; Smt. Shanti Rani v. Asstt. CIT [2003] 126 Taxman 62 (Chd.) (Mag.) and Petro Impex (India) (P.) Ltd. v. Asstt. CIT [2003] SOT 469 (Delhi). The learned counsel argued that from these judicial pronouncements it was clear that under block assessment undisclosed income was required to be computed on the basis of evidence found as a result of search and such other material or information as available with the Assessing Officer and relatable to evidence found as a result of search. The statements recorded during the course of search could not be said to be an evidence found as a result of search though the same were obtained during the course of the search. It was, therefore, necessary to relate these statements with some evidence found during the course of search. For the purpose of assessment of undisclosed income in a block assessment, the Assessing Officer was required to have in his possession some direct or clinching evidence. He could not make ad hoc additions on the basis of assumption of facts and hypotheses . In the instant case Shri Ved Prakash Jain was a trader in wires. The assessee concerns had sold its products to Shri V.P. Jain. These transactions were duly recorded in the books of account of the assessees as well as Shri Ved Prakash Jain. No incriminating evidence or material was found as a result of search indicating any payment of commission outside regular books of account. For arguments sake, without conceding, the learned counsel argued that even if it was assumed that the assessee had sold goods to some other parties instead of Shri V.P. Jain, that showed that there was sale of corresponding amount wherefrom commission could be paid to Shri V.P. Jain. However, there was no such enquiry. Even the statement being relied upon was a statement recorded in the course of post search enquiries. The same did not constitute material or information for the purpose of section 158BB. The learned counsel referred to the decision of ITAT, Delhi in the case of Sterling Tools Ltd. v. Dy. CIT [2005] 91 TTJ (Delhi) 261 to the effect that post search enquiries cannot be made the basis of addition. Same view had been taken by Hon’ble Madhya Pradesh High Court in the case of CIT v. Khushlal Chand Nirmal Kumar [2003] 263 ITR 77¹. In any case the statement was retracted by Shri V.P. Jain in cross examination by Shri Arun Kumar Gupta. The earlier statement was recorded behind the back of the assessee and, therefore, could not be utilized as evidence against the assessee. In support of those contentions, the learned counsel relied upon the judgments in P.S. Abdul Majeed v. Agrl. IT & STO [1994] 209 ITR 821 (Ker.), Commissioner Of Income-Tax v. Eastern Commercial Enterprises. [1994] 210 ITR 103 (Cal.), Kishinchand Chellaram v. CIT [1980] 125 ITR 713² (SC), Hirji Nagji & Co. v. Commissioner Of Income-Tax, Orissa. [1976] 105 ITR 286 (Ori.), J.K. Synthetics Ltd. v. ITO [1986] 19 ITD 102 (Delhi), 45 ITR 209 (sic) and Commissioner Of Income-Tax v. Biju Patnaik. [1991] 190 ITR 396 (Ori.).

7. Without prejudice, the learned counsel argued that in any case no addition could be made in the assessments of the assessee group because according to the Assessing Officer the amounts allegedly paid to Shri V.P. Jain were in the nature of unexplained expenditure. An addition under section 69C in respect of unexplained expenditure could be made only after the source thereof remained unexplained. In the instant case the source had been duly explained in the very statement relied upon so heavily by the Assessing Officer. In support of this contention reference was made to question and answer No. 23 of the first statement of Shri V.P. Jain dated 25-9-2001. As such the only so-called evidence relied upon by the Assessing Officer did not leave any room for assessment of any undisclosed income in the hands of the assessee.

8. The learned DR argued that during the course of the search, books of account recording the transactions of the assessee with various concerns of Shri V.P. Jain were found. It could not, therefore, be said that the additions made on account of unexplained commission expenditure had no nexus with search and seizure operations under section 132 in the case of the assessee. These books of account reflected receipt of payment from Shri Jain by way of account payee cheques. During the course of search the genuineness of the transactions recorded in the books of account was examined. Statement of Shri Jain was recorded in the wake of search at the premises of the assessee. The Assessing Officer was, therefore, entitled to include unexplained income based on the statement recorded in the order under section 158BC. In law it was not necessary to conclude the enquiries also along with the search proceedings. The clues found during the course of the search could be pursued subsequently and if any material towards undisclosed income was gathered, the same could be said to be evidence/material relatable to the material found during the course of the search.

9. The learned DR argued that reference made by the learned counsel for the assessee to question and answer 23 in the original statement was misplaced. If the assessee relied upon answer to question 23, he should rely upon the whole statement and not merely a portion thereof. There was also no force in the contention of the assessee that the statement originally given was subsequently retracted upon. Examination of Shri Jain conducted by the assessee subsequently and re-examination of Shri Jain by DDIT subsequently was required to be read as continuation of the statement originally given by Shri V.P. Jain. If the original statement given by Shri V.P. Jain was kept in view, it could be found that in subsequent statement a futile effort was made to clarify the statement originally given. Secondly, the original statement given by Mr. V.P. Jain under section 132(4) had enormous evidentiary value. The learned DR referred to question and answer 61 in the statement recorded on 2-11-2001. In that statement Shri Arun Gupta merely stated in respect of the loose papers, "I do not know". Thus, no attempt has been made in the statement of Shri Arun Gupta to furnish plausible explanation. The learned DR referred to paper book pages 211-212 and pointed out that large amounts were recorded by way of receipt or payment of cash. There was no specific explanation in respect of such loose documents. These loose documents enumerating cash transactions were evidence corroborating the original statement of Shri V.P. Jain.

10. We have considered the rival submissions. From plethora of Tribunal decisions and High Courts judgments it is settled legal position now that while making an order under section 158BC, the Assessing Officer does not have the same jurisdiction that he has while assessing the income of an assessee under the general provisions of the Act. An order under section 158BC can be made only in respect of undisclosed income that he determines as a result of search. It is not correct position in law that while completing order under section 158BC, the Assessing Officer can make assessment of the entire undisclosed income that comes to his notice during the course of the proceedings under section 158BC. He can make assessment of only that undisclosed income which has a direct nexus with the search proceedings in the case of the assessee. During the course of hearing before us the learned counsel for the assessee has categorically stated that during the course of search proceedings under section 132 no incriminating material was found or detected that could point to payment of the alleged commission to Shri V.P. Jain. The search proceedings in the case of the assessee commenced on 11-9-2001 and the same were concluded on 12-9-2001. During the course of search proceedings no statement of Shri V.P. Jain was recorded. First statement of Shri V.P. Jain was recorded on 25-9-2001. That statement is the sole basis so far as additions in respect of unexplained commission payments have been made in the assessments of various assessees of this group. Under these circumstances it cannot be said that any material pointing towards undisclosed commission payments to Shri V.P. Jain was discove- red during the course of the search. The learned DR has placed heavy reliance on the fact that during the course of search proceed- ings books of account were found wherein the transactions of the assessee with Shri V.P. Jain and various concerns of Shri V.P. Jain were found. During the course of search proceedings the books of account maintained by an assessee in the regular course are supposed to be found. Had such books of account been not found, that could have been a circumstance against the assessee. The argument that as the department decided to verify the contents of the books of account and enquired into genuineness thereof, the subsequent enquiry and material gathered should be treated as a result of search is far-fetched. As far as the books of account were concerned, the same support the case of the assessee and do not contain any incriminating material. Statement of Shri Ved Prakash Jain cannot be considered to be part of the search or even the result of the search. Such a statement could have been recorded in the ordinary course of enquiry in the case of the assessee. It is important to bear in mind that every enquiry conducted by the department after the date of the search cannot be presumed to be an enquiry as a result of the search unless and until that enquiry can be linked to some specific material or evidence detected during the course of the search. We are, therefore, of the considered opinion that the additions based on the statement of Shri V.P. Jain cannot be treated to be a consequence of the search carried out at the premises of the assessee before us. We, therefore, hold that these additions do not fall within the scope of order under section 158BC of the Act and are, therefore, liable to be excluded for that reason alone.

11. Apart from the fact that the addition under section 69C made by the Assessing Officer on account of alleged payments to Shri V.P. Jain cannot be subject-matter of block assessment orders in the cases of the assessee before us, we find that even otherwise the addition has been made on inadequate material. In this case the only basis on which the additions have been made is the first statement of Shri V.P. Jain. The learned counsel for the assessee has rightly pointed out that in answer to question 23, Shri V.P. Jain has stated that the commission was paid to him from out of cash sales made by the assessee. Shri V .P. Jain categorically stated that by this modus operandi Bansal group did not derive any benefit and the amount of commission had been collected from the parties to whom wires were sold against cash payment. Bansal group only ‘passed’ the commission to Shri Jain. Hence, if reliance is placed on the statement as given by Shri V.P. Jain the source of alleged commission is self-explained. While relying on the aforesaid statement of Shri V.P. Jain the Assessing Officer, in the absence of any specific material, is not justified in adopting a pick and choose policy. He cannot selectively rely upon the parts of the statement against the assessees and at the same time ignore other parts which go in favour of the assessees before us. Secondly, apart from this statement there is not an iota of corroborative material in the possession of the department that alleged commission was indeed paid to Shri V.P. Jain. This statement was recorded by the DDIT behind the back of the assessees. When at the request of the assessees opportunity to cross examination was given, Shri V.P. Jain clarified that there were direct sales to third parties at the instance of the concerns of Shri V.P. Jain and what he meant by commission was his margin of profit on such direct sales. In other words, no commission was paid to him by the assessees, as alleged in the impugned orders. It is well-settled legal position after the judgment of Hon’ble Supreme Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713 ¹ that any material collected by the Assessing Officer behind the back of the assessee cannot be used against him unless the assessee has been allowed a chance to rebut the same. Furthermore, no reasons have been given as to why the statement of Shri V.P. Jain should be accepted to be true while the statement of the assessee well supported by regular books of account should be assumed to be false.

12. In view of the discussion in the foregoing paragraphs we do not see justification for additions made in the cases of the assessees before us on the ground of alleged unexplained payments to Shri V.P. Jain. We, therefore, delete the same.

13. The second major issue involved in these appeals relates to the additions as sustained by the learned CIT(Appeals) on the ground of excess stock being found during the course of the search. The details of such additions are as follows :—

Facts of the case leading to this dispute briefly are that the concerns named above were engaged in the manufacturing of mild steel galvanized iron wires. During the course of search proceedings under section 132 at the premises of the aforesaid business concerns, an attempt was made to inventorise stock in hand as physically found. The stock was lying at various premises and godowns of the assessee in thousands of bundles.The offi-cers conducting the search did not carry out the exercise of actual weighment of goods. The weight in the stock inventory was taken on estimate basis. When the stock as per these inventories was compared with the stock position as reflected in the books of account of these concerns, it was noticed that stock inventoried was far in excess, for example in the case of Balaji Wires Pvt. Ltd., the stock as per inventory prepared at the time of search was 425.225 MT; whereas the stock as per books was 294.379 MT only. Thus, according to the Assessing Officer there was excess stock of 130.846 MT. By applying the average rate of Rs. 19.50 per kg. the excess stock was valued at Rs. 25,51,497. Similarly, the discrepancies were worked out in respect of other business concerns. During the course of block assessment proceedings the assessee was asked to explain the difference in stock. In the case of Balaji Wires Pvt. Ltd., the following reply was given:—

"It has been already pleaded in our last submissions that the stock found and inventoried by the search party was inaccurate. The difference of excess stock of 130.846 MTs. arrived at has been without any basis. The count of bundles on eye estimation and not by actual counting is incorrect.

The discrepancies crept in the inventory due to method of stock taking adopted by the search party is glaring in the case of finished stock. From the inventory of finished stock annexed with the panchnama it can be seen that the weight of bundles of fine wire in various gauges have been taken as 65 kgs. for each bundle for the items mentioned on serial Nos. 1 to 8 and 20 kgs. for all the items taken on serial Nos. 10 to 14. We shall like to point out that the weight of bundle varies according to the different size of wire.

In support we submit herewith photocopies of few sales invoices, where the weight of bundle of fine wire as per serial Nos. 1 to 8 coming to 45 kgs. whereas the weight taken in the inventory is 65 kgs. for all the 8 items.

Similarly, in case of fine wires mentioned at serial Nos. 10 to 14 the average weight per bundle is taken as 20 kgs. We enclose herewith photocopy of sales invoices of these wires where the average weight per bundle is coming to around 12 kgs. per bundle."

Similar replies were given by other assessees. The learned Assessing Officer argued that the inventory of stock had been taken in the presence of assessee’s representative and two independent Panchas. During the course of search operations and even thereafter no objection was raised regarding the authenticity of the inventory. The Assessing Officer held that the explanation given by the assessee was only an after thought that was not well supported. The Assessing Officer selected bill No. 12392 of Balaji Wires Pvt. Ltd. and pointed out that 37 bundles of 2846 kgs. were transacted on 31-8-2001. In other words average weight per bundle was 76.91 kgs. As against the same during the course of the search bundles comprising average weight of 68.08 kgs. to 100.33 kgs. were found. There was no force in the contention of the assessee that average weight of bundle was 45 kgs. Thus, the learned Assessing Officer supported his finding of excess stock being found during the course of the search. Accordingly he made additions as above enumerated.

14. During the course of hearing before the learned CIT(A) the assessee argued that method of stock taking adopted by the search party was eye estimation counting of bundle in rows and then multiplying the same with the average weight of a bundle in that scissor of bundles. On that basis the search party arrived at an estimated number of 7866 bundles and total weight was worked out at the average weight of 65 kgs. per bundle. Even the correct counting of total number of bundles of 7866 by the search party was physically impossible within few hours the search was carried out. There was gross error in counting the number of bundles in this way. Secondly, there was no uniform weight per bundle of wire. There was no basis for average weight of 65 kgs. taken in the inventory. The learned CIT(A) found that the assessee had maintained stock registers on the basis of weight only. The assessee produced steel wire of different gauges and record thereof was not kept. With the margin of error of less than 0.1 per cent depending on the thickness of a steel wire, the weight could be calculated on the basis of length produced. From the panchnama it was seen that the search party spent about 10 hours of stock taking assisted by the employees of the factory. The stock of wires was not heavily stacked but widely spread out. With the daily experience of handling materials, the staff guided the search party in counting the number of bundles. Since the inventory was prepared on complete assistance from the employees of the factory familiar with day-to-day handling of the stock, the number was precisely arrived at 7866. Such counting inventoried in 5 pages could not be brushed aside as mere eye estimation. There could not be wide variation in the counting of the number of bundles. As to the argument of the assessee relating to weight ascribed to 7866 bundles, the learned CIT (Appeals) noted that the products of the assessee were ISI marked. In other words, the weight could be arrived at on the basis of thickness of wire and length of wire with a margin of error of less than 0.1 per cent. The assessees’ employees had quoted different weight for different set of bundles on such basis. The inventories comprised of six different weights, 40, 45, 65, 75 & 90 kgs. This variation could not be mere eye estimation. The learned CIT (Appeals) examined sale invoices. According to him a large number of bundles had weight more than 65 kgs. He held that the average weight could not be 45 kg. per bundle. He, however, reduced the weight taken by the learned Assessing Officer at 65 kgs. to 60 kgs. per bundle. In respect of fine wire products he reduced the average weight from 20 kgs. taken by the Assessing Officer to 16 kgs. The average price applied by the Assessing Officer was upheld. On this basis the learned CIT (Appeals) by and large sustained the addition made by the Assessing Officer with some relief granted to the assessee. Still aggrieved, the assessees are in appeal before us.

15. During the course of hearing before us the learned counsel for the assessee argued that the Bansal group of assessees were engaged in the business of manufacturing mild steel galvanized wire, stainless steel wire and black wires in various gauges and sizes. For a proper weighment of such stock it was necessary to employ proper mechanical device. The search party did not use any mechanical device and they also did not utilize the services of experts. The method of stock taking was estimation of number of bundles by eye glance counting. The same was bound to be erroneous. Similarly the weight of stock was not arrived at by physical weighment of the entire stock but the figure of average weight of a bundle was worked out by sampling method. As to the raw-material used by the assessee, that is wire rods, the same were heavy and could not be easily handled manually without the help of a crane. Raw material and finished goods of the assessee were in bundles/coils of different thickness and weight. The manufacturing process in the assessee’s factories was not automatic and electronically controlled. The manufac-turing process was carried out on local machines by unskilled labour. Due to the process involved the weight of bundle was not uniform and varied from bundle to bundle. The bundles, coils and guchees were stored on factory floors in stacks. Being heavy the bundles were not stacked in vertical rows. The same were stored in a scissor like fashion. Counting number of bundles stored in scissor like fashion was a very difficult task. In support of these contentions the learned counsel placed reliance on the photographs enclosed at pages 153 to 167 of the paper book. It was argued on the basis of the photographs that precise counting of bundles was not possible with a few hours. Therefore, the search party resorted to eye estimation. No actual weighment was done even though the employees present on the date of the search were ready to co-operate in getting the total material weighed. Of course, the same would have required a few days and not merely few hours, that was not spared by the search party. But for a proper physical stock taking there was no alternative to actual weighment. The staff present on the date of search voiced these concerns but they could not strongly protest out of fear and nervousness. In the end they signed on the inventory as per the directions of the search party and not out of their own free will and consent. The management of the Bansal group was not party to such stock taking. Shri Arun Kumar Gupta objected to the faulty procedure in his statement recorded on 29-11-2001. He stated that the inventory of the stock had been taken in totally wrong way. Counting of thousands of bundles was not possible in given frame of time. Weight was taken on approximate basis. The amount of excess stock worked out was not possible. Excessive average weight was applied. It could not, therefore, be said that the assessees did not register their objection soon after the search. However, the objections raised in the statement of Shri Arun Kumar Gupta on 29-11-2001 were not heeded. Had the stock been actually weighed, there could be no variation. The alleged excess stock was creation of faulty process of stock taking adopted by the search party and did not exist in reality. The learned counsel referred to the decision of ITAT, Cuttack (TM) in the case of Utkal Alloys (P.) Ltd. v. Dy. CIT [2002] 82 ITD 120 wherein relying upon the judgment of Hon’ble Orissa High Court in the case of Haribhagat Agarwalla v. State of Orissa [1982] 51 STC 355 it was held, that no addition could be made on the basis of difference of stock arrived at by sampling method. It was held in that case that assessing authorities were not justified in estimating the value of stock without physically weighing them, particularly when the assessees maintained regular books of account which were checked by the central excise authorities from time to time.

16. The learned counsel pointed out that in the case of Bansal Strips Pvt. Ltd. physical stock taken included stock of scrap to the tune of 700 kgs. In that case also the average weight per bundle/ coil taken in the inventory was on a very high side. The average weight was taken at 79.05 kgs.; whereas in respect of drawing grade wire the weight of the bundle was around 50 kgs. only. While doing so the authorities completely ignored the sales invoices. On the contrary they picked up only favourable instances from the point of view of revenue. In the case of Balaji Wires Pvt. Ltd. stocks of raw-material, semi-finished and finished goods were inventoried. The nature of difference in these three types of stocks was not appreciated. The same rate of average weight was applied in respect of different nature of stock in hand. There were several inconsistencies in the inventories prepared which would be evident even to a lay person. For example, there were following glaring deficiencies and discrepancies:—

"On page 1 of the inventory (refer to page 75 of the paper book), at serial Nos. 5 & 6, the weight per bundle is taken uniformly at 47 kgs. per bundle for wires of 2.90 mm. and 3.40 mm. respectively.

On page 2 of the inventory (Page 76 of the paper book) at serial Nos. 5 & 6, the gauges are 2.70 and 3.40 but the bundle weight is taken uniformly at 80 kgs. which is impracticable.

Similarly at page 5 of the inventory (page 79 of the paper book) showing the stock of finished products, the weight per bundle is taken at 65 kgs. uniformly from serial Nos. 1 to 8, although the materials are different in gauges.

Again, on the same page, the bundle weight is taken at 20 kgs. at Sl. Nos. 10 to 14 for different thickness of materials."

17. The learned counsel argued that there was no credibility of the average weight taken by the search party. The same was based after picking up instances of higher weight bundles. During the course of hearing before the learned CIT (Appeals) it was pointed out that sale invoices comprised of bundles weighing from 8.54 kgs. to 80.77 kgs. per bundle. The Assessing Officer quoted examples of few seized bills only in order to support the alleged figure of 65 kgs. per bundle. The Assessing Officer consciously referred to selected bills wherein the weight of the bundle was on the higher side, while he completely ignored other bills in the same seized material which showed much lower weight per bundle. The learned Asses-sing Officer has enumerated only 7 bills from out of 818 pages of seized invoices. The relief granted by the learned CIT (Appeals) after taking note of such defects was paltry. The learned CIT (Appeals) merely made a fresh estimate without actually working out conci-sely average weight emerging from the seized bills. Even otherwise the number of bundles counted by the search party itself was in dispute. Similar gross errors were committed by the search party in the cases of other assessees of the group as well. It was for this reason that in one case the search party arrived at shortage. In that case the search party forgot to take into account the stock of material-in-process. The stock of raw-material in the furnaces as well on a number of machines was not inventoried.

18. The learned counsel argued that the Assessing Officer adopted as a thumb rule that excess represented unaccounted purchases and shortage represented sales outside books of account. During the course of search proceedings the entire premises of the assessee were scanned and all books of account and documents were taken possession of. Apart from relying on the faulty inventory of stock prepared the Assessing Officer has not been able to refer to an iota of material to corroborate or lend support to such findings. For example not a single bill or paper indicating any purchase or sale of material outside regular books of account during the course of entire search operation. No other document or loose paper/document supporting business out of books of account was found. That could not be the case if the assessee had indulged in sale/purchase of material outside books on such enormous scale.

19. The learned counsel argued that it was settled legal position that for assessment of undisclosed income in block assessment proceedings under section 158BC, there should be cogent evidence of undisclosed income in fact having been earned as a result of search. In the block assessment proceedings there was no room for any assumptions or hypotheses. There was no material of any undisclosed sale or undisclosed purchase. In these circumstances it was not open to assess undisclosed income on the basis of surmises, conjectures and estimates. Reliance in this behalf was placed on the judgments in CIT v. Vinod Danchand Ghodawat [2001] 247 ITR 448 ¹ (Bom.); CIT v. Rajendra Prasad Gupta [2001] 248 ITR 350 ² (Raj.); Commissioner Of Income-Tax, Delhi-Ii v. Ravi Kant Jain. [2001] 250 ITR 141²0 (Delhi) and on Tribunal Decisions in 73 ITD 208 (Mum.) (sic), Virinder Bhatia v. Dy. CIT [2002] 74 TTJ (Delhi) 60²1 ; K. Moidu v. Asstt. CIT [2002] 81 ITD 242 (Coch.) (TM) and First Leasing Co. of India Ltd. v. Asstt. CIT [2001] 250 ITR (AT) 1²2 (Cochin) (SB).

20. The learned DR argued that during the course of search proceedings no objection was taken, no representation was made by the assessees against the manner in which stock inventory was taken. There was no room for any error insofar as counting of the number of bundles was concerned. The assessees’ objection as to the average weight per bundle was also frivolous because these stock inventories had not been prepared by the search party on their own but on the basis of information supplied by the assessees’ own employees. As pointed out by the learned CIT (Appeals) the assessee had provided scant information in the stock registers. Apart from weight in kgs. nothing else was recorded. In these circumstances the only proper course was to apply the average weight. The assessee could have carried out the exercise of average based on aggregate of all the sale invoices if he so desired. The assessee instead of bringing on record material in his defence and in support of his book results was merely criticizing the methodology of the search party, which in turn was based on assessees’ own bills. As a matter of fact in the explanations given the assessee himself talked about the average weight. The Assessing Officer worked out this average weight on the basis of actual sale invoices. Under these circumstances it could not be said that the stock inventory prepared during the course of the search was mere eye estimate.

21. The learned DR argued that it was not correct to state that during the course of search proceedings no corroborative material/evidence was found in support of excess stock physically found during the course of search proceedings. In the case of Smt. Anita Gupta unaccounted investments were found. These unexplained investments gave weight to the findings of the Assessing Officer that the assessee had been earning undisclosed income from its business of manufacturing iron & steel wires. The learned DR argued that the version of the assessee in relation to the provisions of Chapter XIV-B was not correct. The assessees’ counsel had conveniently overlooked the amendment brought to the provisions of the chapter with retrospective effect from 1-7-1995.

22. The learned counsel for the assessee in his rejoinder argued that management of the assessees of this group was never a party to the physical inventory prepared by the search party. The search officers directed some of the staff of the assessee to join them in the slipshod exercise and later on directed them to sign the inventories thus prepared. Those employees unaware of the provisions of law and implications of the exercise signed the inventories because they were directed to do so. It was not correct that the procedure adopted by the search party in this behalf was not objected to till the late stage of assessment proceedings. DDIT recorded the statement of Shri Arun Kumar Gupta only in November, 2001 and at that point of time he objected to the stock inventory elaborately. In spite of dissent and reservations recorded by the assessee the DDIT did not take any further steps. In other words he accepted the objections of the assessee to be correct. During the course of search proceedings more than 800 bills were seized. The Assessing Officer only picked up 5-6 bills to arrive at an average. These were matters over which the assessee could have no control except recording his protest.

23. We have carefully considered the rival submissions. The legal position in this respect is firmly settled by now. While completing an assessment the Assessing Officer is not a court. He is also not bound by technical rules of evidence. He may consider material which would be wholly inadmissible in a court of law. He may draw his conclusion and inferences on the cumulative effect of various circumstances based upon the test of human probability. At the same time though technical rules of evidence do not apply, the Assessing Officer is bound by the principles of natural justice. He cannot draw his inferences on the basis of suspicion, conjectures and surmises. Suspicion howsoever strong, cannot take place of material in support of findings of the Assessing Officer. The Assessing Officer should act in a judicial manner, proceed with a judicial spirit and come to a judicial conclusion, as held by Hon’ble Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. v. ITO [1978] 112 ITR 1038. While recognising that the Assessing Officer is not fettered by technical rules of evidence, Hon’ble Supreme Court laid down as early as in the case of Dhakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 that the Assessing Officer has to act fairly as a reasonable person and not arbitrarily or capriciously. An assessment based on no material at all or based on inadequate material is, therefore, bad in law liable to be set aside. Taking into consideration these parameters, we find that the assessee in the present case is a manufacturer of iron and steel hardware. In his business, he has to deal with goods in bulk at the stage of procurement of raw-material, at manufacturing process and at storage and sale of finished products. In the instant case, the assessee has maintained quantitative details of material thus, handled. The learned CIT (Appeals) has commented upon the stock details not being kept by the assessee quality-wise as well. Even if we ignore the practical difficult-ties in maintenance of such details in the business of iron and steel hardware, the fact remains that the assessee has kept quantitative details. During the course of search proceedings the search authorities have attempted to verify the stock details kept by the assessee by comparing the stock as per books with inventory of physical stock taking during the course of search. The entire exercise in the cases of about half a dozen business concerns was commenced and completed within a few hours. It does not require much imagination to arrive at the enormous logistics required for undertaking the task of a reliable estimation of the stock of the kind of goods the assessee dealt in. The task involved was by any standards a tedious, painstaking task requiring certain amount of patience and perseverance. It appears to us that the search party had none of it. With a view to remove botheration a much simplified procedure was adopted. For justifying such procedure all the emphasis is placed on the factum of staff members of the assessee concerns having put their signatures on the inventories prepared. We are unable to accept the argument that these signatures have the effect of rendering the inventories into authentic documents. There is no material to suggest that the employees concerned were properly authorized to certify the quantity of stock of different kind physically present at the premises of various concerns. It is also not clear that by placing their signatures on the papers prepared by search party the employees concerned were indeed verifying the correctness and accuracy of contents thereof. There is no narration from them as to what for they were signing the documents in question. The least that was required was to obtain confirmation from the directors of the company about the accuracy and correctness of stock taking done by the search party. In these circumstances, we have no option but to take these inventories as a unilateral document prepared by the search party on their own. That being so the burden lies on the department to establish that the stock taking had been done in a fairly reasonable and satisfactory manner. The learned CIT (Appeals) has harped upon the employees accompanying the search party and their day-to-day knowledge and experience of dealing in such matters. In the absence of no confirmation at all from the employees as to what for they were signing the documents, we are unable to attach such high degree of importance to their signatures obtained by the search party. From the facts and circumstances of the case it is clear to us that the manner in which stock taking has been done can hardly evoke any confidence. That being so the finding of excess stock being found during the course of search operation has been given by the authorities below on grossly inadequate material. That finding cannot be sustained even under the parameters of income-tax assessment proceedings not bound by technical rules of evidence. We, therefore, direct deletion of the additions made by the authorities below on the alleged excess stock, shortage of stock physically found during the course of search proceedings in all the appeals before us.

24. We are now left with the appeals filed by Shri Arun Kumar Gupta in his individual capacity and Smt. Anita Gupta. We have already dealt with the additions of Rs. 58,982 made by the Assessing Officer in the case of Shri Arun Kumar Gupta (HUF) and of Rs. 48,861 in the case of Shri Arun Kumar Gupta (Indl.) on account of the alleged commission received by them while dealing with the allegation of commission in the cases of various concerns of the group as a whole. Another issue in the case of Shri Arun Kumar Gupta in individual capacity relates to an addition of Rs. 53,69,260 made on account of loose papers. This aggregate addition has been made on the basis of certain loose papers found during the course of the search. These loose papers were seized from the residence of Shri Arun Kumar Gupta and were marked as annexure A1. Page 6 of the annexure mentioned the word "Bansalji" on the top. Certain figures were mentioned on this document totalling at 1,79,550 from which 4,000 is subtracted and balance is struck at 1,75,550. The assessee submitted to the Assessing Officer that this paper was not in his handwriting and it was a rough slip and that he was not able to recollect the entry. The assessee further stated that the paper did not belong to him. The learned Assessing Officer found that the submissions of the assessee were vague and general. As the paper had been found from the residence of the assessee, the onus was upon him under the provisions of section 132(4A) to prove the transaction. In the absence of explanation the learned Assessing Officer treated the figures as assessee’s unexplained credits in rupees and added the same as undisclosed income for the current period.

25. Pages 7, 10 and 11 contained certain cash transactions on some dates without mentioning the year. The word "A" is written in respect of several entries. According to the learned Assessing Officer this was code word to denote Arun Kumar Gupta. The transactions were written in coded language. He asked the assessee to explain the transactions. Shri Gupta submitted that these papers did not belong to him and he was not able to recollect the transactions. The learned Assessing Officer found that on page 7 there was an entry as follows :

60 = 60 Rokra babat DD Manipal dated 19/7

Shri Gupta in his statement stated that it could be DD charges for some demand drafts. The learned Assessing Officer noted that a demand draft of Rs. 6,000 was taken from Canara Bank, Sadar Bazar, Delhi. With DD making charges of Rs. 60 it added up to Rs. 6,060. Thus the figure of 6,060 had been written as 60=60. On this basis the learned Assessing Officer interpreted the figures as mentioned by him in a tabular form at pages 2 and 3 of the block assessment order in the case of Shri Arun Kumar Gupta. According to him, the analyses of these transactions showed that there was one person Shri V.K. Jain, who was handling cash on regular basis. There were other persons, namely, Shri Ashok Daga and Shri Narander Jain through whom the assessee was dealing in chits. The assessee had made one demand draft for Rs. 6,060 to be sent to Manipal. The demand draft was made by Snehi Gupta, 69E, Kamla Nagar, Delhi. Shri A.K. Gupta was residing at E-69, Kamla Nagar, Delhi. The same address had been given by the assessee’s wife Smt. Anita Gupta in her bank account with J & K Bank, Sadar Bazar and Canara Bank, Sadar Bazar. The learned Assessing Officer held that the onus was on the assessee to prove the transactions as required under section 132(4A). In the absence of explanation from the assessee, the learned Assessing Officer added up certain transactions on these papers aggregating to Rs. 34,73,710. He treated this amount as Shri Gupta’s unexplained income and added back the same in the block assessment.

26. Page 8 is a small slip titled as "Arun June". The paper recorded certain transactions aggregating to 1300=00. The Assessing Officer held the decoded total to be Rs. 1,30,000. The assessee submitted that the paper was not in his handwriting and he was not able to recollect the nature of figures written on the paper. He stated that the slip did not belong to him. The learned Assessing Officer held that the assessee was intentionally avoiding to explain the paper. He, therefore, assessed the sum of Rs. 1,30,000 as unexplained income of the assessee. Page 9 is again a small slip titled as "Arun Gupta" written on top of the page. On this page certain figures totalling to Rs. 15,90,000 have been written as having been received on various dates. As per this paper the assessee was having debit balance of Rs. 7,90,000 for the month of June, 2001. This debit balance along with interest of Rs. 4 lakhs and another transaction of Rs. one lakh gave the sum total of Rs. 12,90,000. According to the learned Assessing Officer the assessee made payments in June, 2001 totalling to Rs. 15,90,000 and thus, there was a credit balance of Rs. 3 lakhs at the end. The assessee accepted that the paper was found from the car of the assessee but stated that it was not in the hand writing of the assessee. The assessee was not able to correlate and recollect the nature of jottings on the paper. According to the Assessing Officer the assessee failed to discharge his onus and assessed the sum of Rs. 15,90,000 as undisclosed income of the assessee.

27. During the course of hearing before the learned CIT (Appeals) the assessee argued that the de-codification of figures mentioned on loose papers at pages 7, 8, 10 and 11 and inferences drawn thereon were erroneous. The assessee argued that the loose papers did not belong to him and the same were in the nature of rough and dumb documents. They were not part of any books or records which could form the basis of estimation of undisclosed income. In respect of page No. 6, the assessee submitted that the note was not in his hand writing. The slip did not mention any date as well as nature of figures, whether the same were rupees or weight or whatever. Regarding pages 7, 10 and 11, the assessee argued that the figures had been erroneously converted in thousands and lakhs by adding two digits on the basis of some enquiry from the bank. That enquiry did not reveal any direct connection of the assessee with the alleged demand draft. The figures on the loose papers did not specify whether the same was amount of money or weight of goods or whatever. The nature of figures was not clear. Regarding paper 8 the assessee submitted that though the name "Arun June" was mentioned, the assessee had nothing to do with the document. Similar arguments were raised in respect of page 9. In short the assessee denied any connection with the documents and argued that the same were dumb documents. The same were also not corroborated by any transaction or existence of any assets belonging to the assessee. In support of his arguments the assessee relied upon Tribunal decisions in S.P. Goyal v. Dy. CIT [2004] 269 ITR (AT) 59²3 (Mum.)(TM); Atul Kumar Jain v. Dy. CIT [1999] 64 TTJ (Delhi) 786 and the judgment of Hon’ble Allahabad High Court in Pushkar Narain Sarraf v. CIT [1990] 183 ITR 388²4. The learned CIT (Appeals) held that the loose papers indicated that the transactions belonged to the assessee because Arunji/ Bansalji appeared at various places. The figures on the pages were systematically written and totalled. Some pages were in the same format as the books of account, for example Rokara Haste and then the name of the party along with amount. Against some amounts the words ‘debit and credit’ had also been mentioned. The assessee had simply tried to evade by saying that the same were not in his handwriting. As the loose papers were found at the residence of the assessee, the learned CIT (Appeals) held that the onus was on the assessee to explain the entries. The Assessing Officer had even decoded the entry at page 7 "60=60" to be Rs. 6,060. The Assessing Officer had also found that the address of the person who got made the demand draft viz., Snehi Gupta and the residential address of the assessee was the same 69-E, Kamla Nagar, Delhi. The learned CIT (Appeals), therefore, held that these were not the dumb documents. He further held that proviso to section 158B(b) enabled the Assessing Officer to assess income based on any entry in the books of account or other documents or transaction. The burden that any undisclosed income found during the course of the search had already been disclosed in any return of income was upon the assessee. Provisions of section 132(4A) had also cast the burden to explain on the assessee. The learned CIT (Appeals) referred to decision of ITAT, Ahmedabad in the case of Spectrum Construction Co. v. Asstt. CIT [2001] 77 ITD 153 that the failure of the assessee to rebut presumption raised under section 132(4A) as well as under section 110 of Indian Evidence Act was justification enough for invoking the penal provisions of section 271(1)(c). Even if the presumption under section 132(4A) was rebuttable the assessee had not been able to explain the entries. On this basis the learned CIT (Appeals) upheld the additions made by the Assessing Officer on the basis of loose papers.

28. During the course of hearing before us the learned counsel for the assessee pointed out that these documents were found from the motor car of the assessee. The assessee had been consistent in his submissions before the revenue authorities that the said loose papers did not belong to him and the same were in the nature of dumb documents. During the course of search proceedings also Shri Arun Kumar Gupta had denied having connection with the seized papers. These statements were recorded on 2-11-2001 and 26-11-2001 and Shri Arun Kumar Gupta categorically denied having any connection with the seized papers. The car in which the papers were found was generally used by the children of the assessee, staff, guests, customers, suppliers and other parties. Hence the presump-tion that the papers belonged to the assessee was not correct. The learned counsel relied upon ITAT decision in Ashwani Kumar v. ITO [1991] 39 ITD 183/[1992] 42 TTJ (Delhi) 644 to the effect that in order to attract the presumption under section 132(4) the first requirement is that the documents should be found in possession or control of the assessee. In that case the document was found inside the shop of the assessee and, therefore, it was held that the slip was not in possession and control of the assessee because every thing physically present inside the shop of a person may not be in that person’s control or possession. The Assessing Officer had also not been able to establish conclusively that the loose papers belonged to the assessee. The assessee did not even know how the papers came there. The papers had not been found to have been written by the assessee himself or by any of his family members or even by anybody having any connection with the assessee. That was an incontrovertible fact. On these facts the papers could not be said to have been found in the possession or control of the assessee. Therefore, the requirement for invoking the provisions of section 132(4) was not satisfied. Furthermore, most of these papers were undated and did not bear the name of the assessee. No circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found during the course of search.

29. The learned counsel argued that for the purpose of block assessment an addition had to be related to cogent and positive material found during the search proceedings that could prove conclusively that the assessee had either earned an income or made an investment which had not been recorded in the regular books of account maintained by the assessee. The additions could not be sustained merely on the basis of rough noting made on some loose papers unless the Assessing Officer brought on record some independent and corroborative material to prove that the noting revealed undisclosed income or investment or expenditure of the assessee. The learned counsel referred to the judgment of Hon’ble Supreme Court in the case of CBI v. V.C. Shukla [1998] 3 SCC 410, wherein the Hon’ble Supreme Court held that loose sheets of papers could not be considered as books and the entries therein were inadmissible evidence and could not be relied upon. The aforesaid judgment of Hon’ble Supreme Court had been followed by the Tribunal in the case of Atul Kumar Jain v. Dy. CIT [1999] 64 TTJ (Delhi) 786.

30. The learned counsel for the assessee argued that none of the presumptive provisions could be invoked. Section 68 could not be invoked because the loose papers did not constitute books of account. Section 69 was not attracted because no investments were discovered from loose papers. Section 69A could not be invoked because the assessee was not found to be the owner of any unaccounted money, bullion, jewellery or other valuable article or thing. For the same reason section 68B did not apply. Section 69C did not apply because there was no evidence of any expenditure having been incurred. Section 69D did not apply because none of these documents represented any hundi loans. The learned counsel argued that in this view of the matter the additions based on loose papers was altogether beyond the purview of Chapter XIV-B of the Act. In support of these contentions the learned counsel relied heavily upon the decision of ITAT, Delhi in the case of Atul Kumar Jain v. Dy. CIT [1999] 64 TTJ (Delhi) 786.

31. The learned counsel argued that these loose papers had recorded names of various persons other than the assessee. During the course of statement recorded on 2-11-2001 the assessee offered to give the addresses of some of them. However, no enquiry was made by the Assessing Officer from any of those persons. The learned counsel referred to the decision of Delhi Tribunal - Pioneer Publicity Corpn. v. Dy. CIT [2000] 67 TTJ (Delhi) 471 wherein it was held that no addition could be made simply on the basis of a noting on a visiting card found during the course of the search. The learned counsel also referred to the Tribunal decisions in Asstt. CIT v. Sri Radheshyam Poddar [1992] 41 ITD 449 (Cal.), S.P. Goyal v. Dy. CIT [2002] 82 ITD 85 (Mum.) (TM); S.K. Gupta v. CIT [1999] 63 TTJ (Delhi) 532; Ashwani Kumar v. ITO [1991] 39 ITD 183 (Delhi); Kantilal & Bros. v. Asstt. CIT [1995] 52 ITD 412 (Pune); Satnam Singh Chhabra v. Dy. CIT [2002] 74 TTJ (Lucknow) 976 and N.K. Malhan v. Dy. CIT [2005] 91 TTJ (Delhi) 938. The learned counsel enumerated many more decisions to support his contention that no addition can be made on the basis of a rough document in the absence of any corroborative material.

32. Without prejudice, the learned counsel argued that the addition on the basis of these loose papers could not be aggregate of all the notings at Rs. 53,69,260. From many notings it was not clear whether the figure represented receipt or payment. Many of these papers were undated and the year of transaction was not mentioned at all. In the case of N.K. Malhan v. Dy. CIT [2005] 91 TTJ (Delhi) 938, ITAT Delhi had held that if a document did not state any date or the year, it could not be held that the document pertains to the block period. Some of the notings could be receipt of borrowed amounts and repayments. The same could not be treated as undisclosed income.

33. As to the demand draft to Manipal the learned counsel argued that the same was got made by one Snehi Gupta. The said Snehi Gupta was not related to the assessee in any manner. The Assessing Officer had also failed to establish any link between Snehi Gupta and the assessee. He was not even known to the assessee. If the Assessing Officer insisted that these papers pertained to the purchase of the draft by Snehi Gupta, the obvious conclusion was that the loose papers belonged to the said Snehi Gupta and not the assessee. It was pointed out that in the case of Jaya S. Shetty v. Asstt. CIT [1999] 69 ITD 336 (Mum.) the Tribunal held that presumption under section 132(4A) did not permit the figures written as paise to be interpreted as rupees. Hence if the Assessing Officer relied upon the provisions of section 132(4A) he was required to accept the amounts as recorded therein and not otherwise. Similar view was taken by the Tribunal in the decisions reported in Atul Kumar Jain v. Dy. CIT [1999] 64 TTJ (Delhi) 786 and Pioneer Publicity Corpn. v. Dy. CIT [2002] 67 TTJ (Delhi) 471. It was also pointed out that while the learned Assessing Officer deciphered the figures at pages 7, 8, 10 and 11 by adding two digits, he had accepted the figures at pages 6 and 9 to be correct figures. That showed arbitrariness in approach of the Assessing Officer.

34. The learned counsel for the assessee further argued that in any case these documents called for no addition. Notings on loose paper 11 showed figures of payments aggregating to Rs. 6,500 by some one on different dates of June and up to July on behalf of one Shri V.K. Jain. Thereafter Shri V.K. Jain reimbursed the amount of Rs. 6,500 on 3rd July. Again on page 10 the particulars of payments aggregating to Rs. 6,500 was shown on different dates. Finally Shri V.K. Jain reimbursed the amount of Rs. 6,500 on 22nd June. As such for arguments sake without admitting, if the assessee is said to be the person who made the payments the payments in question were received back on 22nd June and 3rd July from Shri V.K. Jain. As such no undisclosed income could be computed in the hands of the assessee on the basis of loose papers 10 and 11. Even otherwise, without prejudice to the contention of the assessee, even after adding two digits as done by the Assessing Officer, the maximum addition that could be made was Rs. 7,04,635 only. The flaw in the approach of the Assessing Officer was that he aggregated the amounts received as well as amounts paid; whereas the same were required to be adjusted against each other. If that were done the peak amount worked out to Rs. 7,11,135 plus Rs. 4,000.

35. The learned DR argued that these loose papers were found from the car belonging to the assessee and, therefore, prima facie those papers were in control and possession of the assessee. The assessee had brought no material on record to indicate that these papers did not belong to the assessee. In these circumstances the provisions of section 132(4A) applied and the contents of documents were required to be considered to be true. The learned DR argued that it was not as if these loose papers did not indicate any connection with the assessee whatsoever. Loose paper 9 clearly recorded name Arun Gupta June 2001 on the top of the document. It was thus apparent that these documents comprised of transactions of Shri Arun Gupta during the month of June, 2001. Similarly the word "Arunji" was mentioned on seized document No. 8 and the word "Bansalji" was on seized document No. 6. There was thus internal evidence from the documents that the same pertained to the transactions of the assessee. In any case presumption under section 132(4A) applied and the assessee was answerable. In support of these contentions the learned DR relied upon the judgments in 181 ITR 333 (Ker.) (sic). The learned DR argued that there was also ample reason to believe that demand draft of Rs. 6,060 related to the assessee. Though the demand draft was made by one Snehi Gupta, the address given was E-69, Kamla Nagar, Delhi where the assessee was residing. Assessee’s wife Smt. Anita Gupta had also given the same address in her bank account with J & K Bank and Canara Bank. That clearly showed the connection between the draft sent to Manipal and the assessee. These evidences clearly established that the documents in question pertained to the assessee and instead of explaining the nature and transaction in the documents, the assessee was taking shelter under the pretext that the documents were found in a car frequented by many others than by assessee himself.

36. We have carefully considered the rival submissions. We see force in the contention of the assessee that there is no provision of law under which the addition of Rs. 53,69,260 could be made to the income declared by the assessee. It is trite law that if an income not admitted by an assessee is to be assessed in the hands of the assessee, the burden to establish that there is such income chargeable to tax is on the Assessing Officer. With a view to assist the Assessing Officer and to reduce the rigour of the burden that lay upon the Assessing Officer, provisions of sections 68, 69, 69A to 69D have provided for certain deeming provisions where an assumption of income is raised in the absence of satisfactory explanation from the assessee. As these are deeming provisions the condition precedent for invoking such provisions are required to be strictly construed. The facts and circumstances giving rise to the presumption have to be established with reasonable certainty. The Assessing Officer cannot first make certain conjectures and surmises and thereafter apply the deeming provisions based on such conjectures and surmises. In the absence of adequate material as to the nature and ownership of the transaction, undisclosed income cannot be assessed in the hands of the assessee merely by arithmetically totalling various figures jotted down on the loose documents. In other words for the purpose of resorting to deeming provisions, dumb documents or documents with no certainty have no evidentiary value. In the instant case the learned counsel for the assessee has summarized the assessee’s submissions as under:—

"(i)The impugned seized papers are dumb documents having no evidentiary value. No addition can be made simply on the basis of notings on loose papers in the absence of corroborative materials. No circumstantial evidence in the form of any unaccounted cash, jewellery or investment outside the books was found in the course of search.

(ii)The assessee, from the very inception denied having any nexus with the seized papers. The said papers were found from the motor car of the assessee which was used by children of the appellant, staff, guests, customers, suppliers and other parties. As such, they cannot be said to have been found in the possession or control of the assessee. Accordingly, the assessee is not bound by presumption under section 132(4A) in respect of these papers.

(iii)The impugned loose papers do not constitute books of account. Uncorroborated loose paper found in the search cannot be taken as a sole basis for determination of undisclosed income.

(iv)Even otherwise, since the said papers are unsigned the entries therein are not sufficient to fasten liability on the assessee.

(v)Further, the Assessing Officer did not even bother to conduct further enquiry by summoning the persons named in the seized papers although the assessee was ready to furnish their addresses.

(vi)Without prejudice to the above, in the unlikely event that Your Honours decide that the assessee is bound by the presumption under section 132(4A) and that the said papers belong to the assessee, even then the undisclosed income emerging therefrom will not work out to Rs. 53,69,260. Page 6 of the loose paper is undated. Pages 7, 8, 10 and 11 do not specify the year. As such it cannot be deciphered therefrom whether the entries pertain to the block period. In the absence of any specific mention in the seized papers, onus strictly lies on the Revenue to prove that the notings therein pertain to the block period. This onus has not been discharged. Under the circumstances, maximum addition which can be made in the hands of the assessee will be Rs. 7 lakhs on the basis of entries on page 9 as discussed in para 4.7.3 supra.

(vii)Without prejudice to point (vi) above, if Your Honours further decide that generalization as done by the Assessing Officer is acceptable and that entries on pages 7 to 11 should be presumed to be pertaining to the year 2001, the maximum income which can be computed therefrom will be Rs. 7,15,135 as discussed in para 4.12 supra."

After consideration of the matter we find ourselves substantially in agreement with these contentions. Accordingly, we hold that the addition of Rs. 53,69,260 has been made by the Assessing Officer on grossly inadequate material. The same is, therefore, directed to be deleted.

37. In the case of Smt. Anita Gupta the assessee has disputed addition of Rs. 3 lakhs made by way of unexplained expenditure in construction of house. According to the learned Assessing Officer during the course of search proceedings the cost of construction was estimated at Rs. 72 lakhs. The assessee could explain the sources of investment up to Rs. 60 lakhs and offered the balance amount of Rs. 12 lakhs for taxation as undisclosed income. However, in the return of income the assessee disclosed unexplained expenditure at Rs. 9 lakhs only. The assessee did not submit any explanation for the balance amount of Rs. 3 lakhs. During the course of proceedings under section 158BC the learned Assessing Officer asked the assessee to explain as to why the remaining sum of Rs. 3 lakhs should not be assessed as undisclosed income of the block period. The assessee submitted that during the course of post search investigation the total drawings from Bansal Wires was mistakenly taken at Rs. 6,50,000 instead of Rs. 8 lakhs. Besides her husband’s contribution from individual account and HUF a/c. aggregating to Rs. 1,24,000 was also not taken into account while estimating the difference of Rs. 12 lakhs. Therefore, the income was declared at Rs. 9 lakhs instead of Rs. 12 lakhs. The learned Assessing Officer found this explanation to be unsatisfactory. The assessee had shown house hold expenses at Rs. 19,100 only. Total monthly drawings of the assessee and her husband was Rs. 15,000 only. The drawings in these accounts were in the nature of house hold expenses rather than drawings for the purpose of construction of house. He, therefore, rejected the assessee’s explanation in relation to balance of three lakhs and made addition of Rs. 3 lakhs in the block assessment. On assessee’s appeal the learned CIT (Appeals) has concurred with the reasoning of the Assessing Officer.

38. During the course of hearing before us the learned counsel for the assessee argued that addition of the sum of Rs. 3 lakhs was totally outside the scope of provisions of section 158BC. During the course of search no material was found pointing out to any undisclosed expenditure in construction of house. Nor any enquiry in that respect was conducted. The question of investment in construction of house was raised in the statement recorded under section 131 of the assessee’s husband on 26-11-2001 long after conclusion of search under section 132. In that statement the assessee’s husband offered additional income of Rs. 12 lakhs on this account. However, while preparing block return it was found that cost of construction to the extent of Rs. 63 lakhs was duly reflected in the books of account. Hence additional income was admitted at Rs. 9 lakhs only. At any rate, this issue had absolutely no link with the search under section 132 and there was not an iota of material found indicating any unexplained expenditure on the construction of the house by the assessee. Hence this addition was required to be deleted at threshold itself as beyond the scope and ambit of the provisions of section 158BC. On consideration of the matter we find that this contention of the assessee is correct. We have discussed the legal position in this behalf at length in this order while considering the additions made in the cases of various assessees in respect of alleged unexplained commission paid to Shri V.P. Jain. There is direct authority of Hon’ble Delhi High Court in the case of Commissioner Of Income-Tax, Delhi-Ii v. Ravi Kant Jain. [2001] 250 ITR 141 ²5 that in an order under section 158BC only that undisclosed income can be assessed which is unearthed as a result of search. We, therefore, delete the addition of Rs. 3 lakhs made by the Assessing Officer in the absence of the search proceedings carried out at the premises of the assessee having any bearing on this issue.

39. Besides in the case of Smt. Anita Gupta the dispute has been raised in relation to the addition of Rs. 2,34,487 made by the Assessing Officer as unexplained investment in the house-hold goods. According to the Assessing Officer during the search operation luxury items such as, 9 air-conditioners of various makes and models, three colour televisions, fridge, DVD players, Home Theatre Systems etc. of expensive brands were found. The assessee was asked to explain the source of these items. In the reply dated 15-12-2003 the assessee submitted that while estimating total investments of Rs. 72 lakhs in relation to the construction of house, cost of acquisition of these items had also been included. The assessee submitted that cost of furniture, house-hold valuables, air-conditioners etc. was Rs. 1,25,513 only. The learned Assessing Officer held that the assessee had not furnished any explanation or supporting evidence while declaring the total cost at Rs. 1,25,513 only. As per the inventory prepared the cost of 9 air-conditioners was Rs. 2,10,000. The cost of other items such as Colour televisions, fridge, DVD Players, Home Theatre Systems etc. was also not less than Rs. 1,50,000. All these items were of expenses variety. The learned Assessing Officer, therefore, estimated the total expenditure at Rs. 3,60,000 as against Rs. 1,25,513 admitted by the assessee. Accordingly he made an addition of Rs. 2,34,487 in the block assessment of Smt. Anita Gupta. On assessee’s appeal the learned CIT (Appeals) concurred with the view taken by the Assessing Officer.

40. During the course of hearing before us the learned counsel for the assessee argued that here again the addition was outside the scope of provisions of Chapter XIV-B. During the course of search not an iota of incriminating material was found indicating any unaccounted expenditure in the acquisition of these articles. No material was found that the cost of these items was more than the amount estimated by the assessee. The entire addition had been made by the Assessing Officer on the basis of pure esti- mate for which no particular material was relied upon. In a block assessment under Chapter XIV-B, there was no scope for such additions made on estimate based on conjectures and surmises. On consideration of the matter we do not agree with these contentions of the learned counsel for the assessee. If during the course of a search, a person is found to be living beyond his known sources of income, it cannot be said that no material is found during the course of the search. The air-conditioners, colour TVs, refrigerators etc. were found during the course of the search and it was also found that drawings disclosed by the assessee from time to time did not reflect acquisition of these items by the assessee. Thus, the factum of unexplained expenditure finds its root in the search carried out at the residential premises of the assessee. The assessee has herself admitted unexplained expenditure of Rs. 1,25,513. We also do not accept the contentions of the learned counsel for the assessee that the estimate of total investments at Rs. 3,60,000 has been made by the Assessing Officer on pure estimate. No material has been relied upon by the assessee in the first instance in support of her contention that the total cost involved was Rs. 1,25,513. No particulars of the date of acquisition and the party from whom acquired have been furnished. Under these circumstances, the Assessing Officer was left with no other option but to make a fair and reasonable estimate. In our opinion, the estimate of Rs. 3,60,000 for 9 air-conditioners, three colour televisions, refrigerators, DVD players, Home Theatre Systems etc. of high quality cannot be said to be unreasonable. We, therefore, uphold the addition of Rs. 2,34,487 as made by the learned Assessing Officer.

41. In the result, the appeal filed in the case of Smt. Anita Gupta shall be treated as partly allowed. The appeals filed by all other assessees shall be treated as allowed.

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