Vildirect: IncomeTax-caselaws-1991-VIL-124-ITAT-JAI

1991-VIL-124-ITAT-JAI

Equivalent Citation: ITD 041, 097, TTJ 042, 423,

Income Tax Appellate Tribunal JAIPUR

Date: 27.11.1991

KISHANCHAND SOBHRAJMAL.

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s) : V. P. ELHENCE., J. K. VERMA.

JUDGMENT

Per Shri J.K. Verma, Accountant Member ---- The assessee is a Registered Firm. It carried on the business of Arhat of potatoes and onions. It had two partners, viz., Shri Kishanchand having 60% share and Smt. Savitri Devi having 40% share in the relevant assessment year. Shri Kishanchand was also a partner in two other firms, viz., M/s. Shobhraj Cold Storage and Ice Factory, Jaipur having 30% share and M/s Jay Ambe Aloo Bhandar, Jaipur having 50% share. The assessee had filed a return of its income on 15-7-1985 and the assessment had been completed on that return under section 143(1) of the Income-tax Act. Thereafter on 5-9-1985 searches were conducted under section 132 of Income-tax Act on the business premises of the firms of this 'group' in Jaipur and Ajmer and also the residential premises of their partners. Proceedings under section 147/148 were initiated and the assessee firm was assessed on a total income of Rs. 10,89,439 on 28-3-1988. That assessment was, however, annulled by the CIT (Appeals) on 23-1-1989 because notice under section 143(2) had not been served on the assessee. Department did not challenge that order but initiated fresh proceedings under section 147/148 in response to which the assessee filed a return showing income at Rs. 72,753 on 30-5-1989. This time the Assessing Officer completed the assessment on a total income of Rs. 20,76,920 vide his orders dated 29-6-1989. In the appeal filed by the assessee against that order the CIT(A) allowed only some relief to the assessee and hence the assessee is in appeal before us.

2. The first objection of the assessee is regarding an addition of Rs. 4,60,290 made on the basis of a"Sahi Bahi" or Signatures Book marked as Annexure C-28 in the seized documents and referred to as such in the assessment order and the appellate order. According to the Revenue, this document was seized from the business premises of the assessee firm and was written in three parts. Entries relevant for year under consideration are as under :

1. Pages 1 - 5 Advances totalling to Rs. 1,71,672 made between 15-2-1985 to 31-3-1985

2. Pages 15 -27 Payments of Rs. 2,88,618 made from 15-2-1985 to 28-3-1985 recorded along with quantity of potato bags and truck nos.

3. Pages 27 -52 Ledger accounts of above-mentioned persons.

3. The Assessing Officer alleged that since this document was found from the premises of the assessee firm, it might be presumed that it belonged to assessee-firm. Moreover, since these entries were not found recorded in the regular books of account of the firm, they could be treated as unexplained investments of assessee and thus proposed to add an amount of Rs. 4,60,290 to the income of the firm. It was explained by the firm that these were the accounts pertaining to transactions carried on by the partner shri Kishanchand in his individual capacity and the firm had nothing to do with it. Shri Kishanchand also confirmed through an affidavit dated 8-3-1988 (pages 89-90 of paper book) what he had stated in his statement on oath before Assessing Officer on 9-10-1987 (pages 182-187 of paper book) that they were the record of transactions carried on by him in his personal capacity. These transactions were carried on from the money totalling to Rs. 1,82,000. Rs. 1,22,000 out of this was the money belonging to his brother Shri Nanakram, who was mentally unwell and to provide a livelihood to his wife and family, Shri Kishanchand was investing that money on interest for them and was passing on interest income to Smt. Draupadi Devi wife of Shri Nanakram. The balance of Rs. 60,000 he had taken on loan from 5 parties, whose details and affidavits, he furnished to the Assessing Officer. These facts he again confirmed in his statement on oath recorded by the Assessing Officer on 24-3-1988 (pages 192-195 of paper book). The Assessing Officer cross-examined only Smt. Draupadi Devi on 6-7-1989 (pages 188-191 of paper book) who confirmed that Shri Kishanchand had made recoveries of outstandings of her husband who was mentally unwell since 1981 and had invested that money for her livelihood and had been paying her the money according to her requirements. The Assessing Officer did not accept the arguments and explanation of the assessee and added this amount to the income of the assessee. The CIT(A) directed the Assessing Officer to get the entries reconciled and to work out the peak credit. But since, according to Assessing Officer, there was no documentary evidence to confirm the claim of the assessee that the money had been coming back from the persons to whom it was being advanced, the statement prepared by the assessee to explain the rotation of this money, could not be accepted. The CIT(A) agreed with the findings of the Assessing Officer and confirmed the additions.

4. In this background Shri Aggrawal vehemently argued that C-28 (sahi bahi) contained advances made as truck freight and loans by partner Kishanchand in his individual capacity and not by the firm. He submitted that even at the time of search Shri Kishanchand had stated this fact. Shri Aggrawal stated that since the copies of statements recorded at the time of search had not been supplied to the assessee, he was not in a position to file their copies but requested that they may be supplied by the Revenue. We have, however, not been supplied copies of those statement's from either side. He submitted in spite of all the explanations and evidence given by the assessee, the CIT(A) sustained this addition, both in the case of assessee-firm and also on protective basis in the case of Kishanchand partner, Shri Aggrawal claimed, on the basis of decision of Allahabad High Court in the case of Smt. Hemlata Agarwal v. CIT [1967] 64 ITR 428, that the appellate authority had to give a final decision and could not uphold a protective assessment. Shri Aggrawal recounted Sh. Kishanchand's affidavit dated 8-3-1988 (pages 89-92 of paper book) statement on oath dated 9-10-1987 (pages 182-187), another statement on oath of Shri Kishanchand dated 24-3-1988, statement of accounts submitted by Shri Kishanchand (pages 52-70 of paper book) and the detailed written explanation dated 9/14-6-1989. He argued that when in his affidavit and repeated statements on oath Shri Kishanchand had explained and owned these documents, the rebuttable presumption under section 132(4A) had been rebutted that they did not belong to the firm and the burden had shifted to the Revenue to prove that they belonged to the firm. Shri Aggrawal submitted that CIT(A) had given no reason for confirming the addition except referring to his decision in assessee's case for 1986-87 assessment year which had been decided by him prior to this appeal. Moreover, according to Shri Aggrawal, since the CIT (Appeals) has held in the case of Shri Kishanchand that this amount should be added in his hands, there was no justification in adding it in the income of assessee firm.

5. Shri Aggrawal submitted that if his arguments to delete this addition were not accepted, his alternative argument was that only Rs. 1,82,000 and not Rs. 4,60,290 should be considered as was clear from the statement prepared by Shri Kishanchand on pages 52-70 of paper book from these accounts. He pointed out that the assessee had filed affidavits from all the parties and except Draupadi Devi, none of those parties was examined by the Revenue. He referred to the decision of the Hon'ble Supreme Court in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78, at page 84 where their Lordships had held that when the assessee had adduced all evidence which it could and the Revenue had not chosen to verify the correctness of that evidence by summoning or cross-examining those witnesses, it would be justified not to sustain such an addition.

6. The learned Senior Departmental Representative submitted that the firm consisted of only two partners one of whom was a lady. Hence only Kishanchand looks after the firm's business. He argued that it could not be claimed to be Kishanchand's individual business because C-28 was found from firm's premises. He argued that, at best it could be argued for the assessee that Kishanchand might not be disclosing this business to his partner but in no case could it be accepted that it was not the business of assessee firm. He strongly relied on orders of Assessing Officer and CIT (Appeals).

7. We have carefully considered the arguments from both the sides and have perused the material on record. We, however, find no force in the case of the Revenue. According to section 132(4A) of the Income-tax Act 'it may be presumed' that books of account and other documents found during the search 'in the possession or control of any person' belong to such person and that 'the contents of such books of account or other documents are true'. These provisions would show that, in the first instance, the presumption raised under section 132(4A) is a rebuttable presumption and, secondly, the contents of such books are true and it would not be open to the Revenue to partly accept the contents and to refuse to accept the other part. Applying these tests to the facts of this case we find that even if these documents were found at the business premises of the assessee firm, it would be naive to presume and accept that a partner, who was admittedly the only working partner of the firm, could not keep his personal affects or personal documents in those premises. Of course the initial presumption would be that they belonged to the firm. But when the partner with his own statement recorded by Revenue authorities not once but on two occasions and with his affidavit supported with affidavits of six other persons, affirms that they belong to him personally, the Revenue would not be justified in rejecting all this evidence merely on the basis of suspicion and on the basis of the presumption under section 132(4A) that the documents belonged to the firm and the entries therein had not been incorporated in the books of the firm. We have taken note of the fact that the assessee had given the explanations to the effect that Shri Kishanchand had sufficient money of his brother and other creditors which he used to advance on interest to his customers and to other agriculturists who used to visit the shop in Sabji Mandi; that he used to write them and used to obtain their signatures; that his shop is situated many miles away from residence and it was not possible to advance money from the residence ; that there was nothing in the Sahi Bahi which may show that it related to assessee's business and affirmed that the presumption under section 132(4A) had been rebutted. We have also examined the evidence adduced by the assessee to suppoort its claim viz., the statement detailing the investnments on pages 52-70 of paper book with the plausible explanation that although separate credit entries on return of amounts were not made in the Sahi Bahi, the entries themselves were struck off, which fact, can be seen even on the photo copies of documents on pages 1-51. We find that Kishanchand right from his first statement available before us dated 9-10-1987 to his last statement dated 9/14-6-1989 had been affirming and owning these documents and had been owning that the entries were in his own handwriting. On the other hand, the Revenue has adduced no evidence to support its suspicion. Again, if the documents have to be accepted as true, it has to be accepted that the entries which were struck off were those entries which remained no longer effective or live entries and hence it could not be presumed that this entire money of Rs. 4,60,290 was advanced by the assessee at one time or without getting back the money advanced earlier. In these circumstances, we accept the arguments of Shri Aggrawal and hold that the documents marked as Annexure C-28, on the basis of which addition of Rs. 4,60,290 was made, did not belong to the assessee and hence the addition of Rs. 4,60,290 is deleted.

8. The second Ground of Appeal is regarding additions of Rs. 24,000 sustained by the CIT (Appeals) out of additions of Rs. 68,597 made by the Assessing Officer. The case of the Revenue was that during the course of search another "Sahi Bahi" or "signatures book" marked as C-26 had been found at the business premises of the assessee. According to the Assessing Officer, the transactions recorded in this "Sahi Bahi" were verifiable from the "regular books of account maintained by the assessee", but the transactions recorded on pages 13 and 14 which relate to 26-2-1985 were not verifiable from the regular books maintained by the firm. He required the assessee to explain these entries. The assessee, in its written submissions, accepted that the Bahi C-26 belonged to the firm. All the transactions recorded in that Bahi were got verified and the few transactions which could not be verified with the regular books were on account of the fact that books of account and other papers were in the possession of the Revenue and were not returned despite orders of the High Court and the assessee would get other entries also verified if and when those papers and books were returned to the assessee. The Assessing Officer did not find the explanation satisfactory and added the amount of Rs. 68,597 to the income of the assessee under section 69 of the Income-tax Act. During the course of appellate proceedings, the CIT (Appeals) directed the Assessing Officer to make another attempt to verify the transactions. The ACIT reported vide his letter dated 15-3-1990 that out of the 14 entries on pages 13, 14 only 11 had been verified but 3 entries pertaining to Svs. Naresh Kumar Paliwala Rs. 11,000, Raghuvir Singh Semra Rs. 10,000 and Vishnu Kumar Rs. 3,000 were not recorded in the books of account of the assessee. The CIT (Appeals), therefore, confirmed the addition of Rs. 24,000 on account of these three items and deleted the balance of Rs. 44,597.

9. We have heard the rival submissions and have perused the material on record. The provisions of section 69 of the Income-tax Act read as under : ---

" Section 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year ".

It may be noticed that what section 69 envisages is that where the assessee had made investments which are not recorded in the books of account, if any, maintained by him, and the assessee offers no explanation about the nature and source of the investments, the value of investments may be deemed to be the income of the assessee of such financial year. In the instant case, it is the case of the Revenue that C-26, i.e., Sahi Bahi was maintained by the assessee and was found from its business premises. The assessee has also admitted that this Sahi Bahi C-26 belonged to the firm, hence it cannot be said that the entries contained in this Sahi Bahi were "not recorded in the books of account, if any, maintained by him". Secondly, section 69 deals with a situation where the assessee has made any investments. In the instant case, we find that the situation is converse, i.e., in this case there is no evidence before us to show that the assessee had made any investments which could be identified in the form of tangible assets. No evidence has been collected, discussed or brought before us by the Revenue to show that the assessee had given money as advances to those persons other than in the normal course of business and "which are not recorded in the books of account". It is a known business practice that Arhatias maintain " Sahi Bahi " as one of the books of account. In the first instance there is no word or expression like "regular books of account" mentioned in section 69 of the Income-tax Act. Secondly, even if it were to be assumed that the books of account mentioned in section 69 referred to only "regular books of account", it cannot be denied that the Sahi Bahi was a regular book of account maintained by the assessee and which was found along with other books of account in the business premises of the assessee. Hence, it cannot be said that the entries pertaining to Svs. Naresh Kumar Paliwal Rs. 11,000, Raghuvir Singh Rs. 10,000 and Vishnu Kumar for Rs. 3,000 were "not recorded in the books of account" maintained by the assessee for its known sources of income, namely, the Arhat business in Potatoes and Onions. Moreover, section 69 allows the Assessing Officer to treat the value of investments as the income of the assessee of that financial year only when the assessee offers no explanation about the nature and source of investments or if the explanation offered by him is not satisfactory in the opinion of the Assessing Officer. We find that in the instant case, at no stage the Assessing Officer or the CIT (Appeals) required the assessee to explain the nature or the source of these investments. What the Assessing Officer conveyed to the assessee vide his letter dated 12-5-1989 (page 109 of the paper book) was that these transactions had not been found recorded in assessee's "regular books of account" and he, therefore, proposed to add that amount of Rs. 68,597 to assessee's income representing unexplained investments made in money-lending business. This would show that neither the assessee was required nor did he explain the nature and source of these investments. The assessee had got 11 entries out of 14 entries further cross verified at first appeal stage with the entries in other books of account maintained by the assessee in addition to all other entries which he had already got verified with other books of account during the proceedings before the Assessing Officer. Taking all these factors into account, we are of the opinion that in the first instance it is not a case where the assessee had made investments which are not recorded in books of account maintained by the assessee; we hold that it is a case where the investments, if any, are recorded in the books of account maintained by the assessee from the regular source of income, namely, Arhat business disclosed to the Revenue, and hence merely because 3 entries could not be cross verified with entries in other books of account would not bring in within the purview of section 69 of the Income-tax Act. We further hold that the assessee had satisfactorily explained the entries in C-26 and if 3 entries out of a large number of entries found in this "Sahi Bahi" could not be reconciled, the assessee had given a satisfactory explanation, inasmuch as, the assessee had not been given back the books of account and the papers in spite of the orders of the Hon'ble High Court, as alleged by it in its written submissions before the Assessing Officer which have been quoted by him at the end of para 4 of his order. We, therefore, order that the additions of Rs. 24,000 sustained by the CIT(A) be deleted.

10. Next objection of the assessee is regarding additions of Rs. 6,87,240 which have been substituted by the CIT(A) in place of additions of Rs. 3,72,217 plus Rs. 9,59,290 = Rs. 13,31,507 made by the Assessing Officer u/s 69 of the IT Act. The case of the revenue was that it had discovered a large number of papers during the course of search which were marked as annexure C-1/46. Those papers contained entries showing truck freight and Majoori advance to the tune of Rs. 3,72,217 made by the assessee which were not recorded in its regular books of account. The Assessing Officer had also inferred that the potato bags mentioned in those papers which, according to him, at the first stage totalled to 12,047 bags (including 1640 bags found noted in C-26), belonged to the assessee, which it had sold and its investment along with profits was not recorded in the books of account maintained by it. When the assessment dated 28-3-1988 was made, the ITO held that only the profit earned on the sale of the potato bags amounting to Rs. 86,336 was assessee's undisclosed income, which he had added to the income of the assessee. However, when the fresh assessment dated 29-6-1989 was framed, the Assessing Officer took a different view; this time he held that the entire investment along with profits had not been disclosed and, therefore, he worked out that figure at Rs. 9,59,290 which he added to the income of the assessee. Which the matter went in appeal to the CIT(A), he directed the Assessing Officer to give the assessee an opportunity to reconcile the figures both in respect of the alleged investments in truck freight and Majoori and in respect of potato bags. The Assessing Officer, in his reports dated 6-3-1990 and 15-3-1990, submitted that the entries regarding C-26 were verifiable and the number of potato bags, which remained unverified would be 11,454 only. Regarding the alleged investments in truck freight and Majoori, he reported that assessee's explanation that the truck freight amounting to Rs. 3,73,732.85 had been received in advance from agriculturists/customers could not be accepted because there was no evidence to support this claim. He further alleged that it was only an after-thought and a concocted story. The CIT(A), for reasons discussed in his order, took the view that all these transactions represent assessee's undisclosed business in sale of potatoes on its own account which had been disclosed to the Revenue and were not recorded in assessee's regular books of account. He, therefore, held that the investments along with the profits after deducting the expenditure on truck freight, majoori, etc. may be considered to be assessee's income from undisclosed sources. He, therefore, estimated the total value of sales of 11,454 bags of potato @ 60 Kg. for 80 Kg. of potato bags instead of the sale price reported by the ACIT between Rs. 19 to Rs. 26 for a bag of 40 kg. reported by the ACIT in his report. The total value, thus, worked out to Rs. 6,87,240 which he directed to be substituted in place of two separate additions of Rs. 3,72,217 plus Rs. 9,59,290 which had been made by the Assessing Officer.

11. It had been vehemently argued by Sh. Aggrawal before us that it was factually incorrect that the documents marked as C-1/46 were found from the business premises of the assessee firm. He submitted that in fact these documents were found from the business premises of the Sister-concern M/s Shobhraj Cold Storage and Ice Factory. He urged that a copy of the Panchnama prepared after the search may be summoned from the Revenue to prove that these documents were discovered from the premises of the assessee. He submitted that the copy of the Panchnama, which should have been given to the assessee according to the procedure as well as according to principles of natural justice, had not been given to the assessee and hence he was unable to file a copy of that Panchnama to show that these papers were not discovered from his premises but were discovered from the premises of the above-mentioned sister-concern. He explained that the Shobhraj Cold Storage and Ice Factory (hereinafter referred to as 'Shobhraj Cold Storage' for the sake of brevity) had 5 partners, one of whom was Shri Kishanchand and since the searches were conducted at the business premises and residential premises of all the sister-concerns and their partners and since Sh. Kishanchand was a common partner in these two concerns, the papers had got mixed up and the Revenue had made its entire case in this regard on the wrong assumption that the documents marked as C-1/46 were discovered from the premises of assessee-firm. Shri Aggrawal submitted that if the Revenue was not able to prove that these papers were found from the premises of the assessee-firm, there was no burden on the assessee to explain any thing with reference to these papers. Secondly, Shri Aggrawal averred, even if the burden of explaining the entries in these documents was on the assessee, there was nothing to show that the assessee had incurred any expenditure first and recouped it later. He further argued that it was a common ground that the amount of Rs. 3,72,217 represented expenditure or investment and hence even if it is treated as income, it has to be allowed as a deduction as expenditure. Shri Aggrawal referred us to the photo copy of page 71 of C-1/46 given on page 76 of the paper book before us and pointed out that on the left hand side the entry reads "3,73,732-85 bahara aya" and on the right hand side "3,67,419.70 bahara diya" (written in Sindhi) but admitted to be so by the Assessing Officer (page 9 bottom para 6 of assessment order). Below that is written "4,797.40 labour charges" (written in Sindhi) and admitted to be so by the Assessing Officer in the above-mentioned narration on page 9. This totals upto 3,72,217.10 and on the left hand side along with an entry of 680, which is stated to be Baraf or Ice by the assessee, the total works out to 3,74,412.85. He thereafter pointed out that on the reverse side of page 71 of the paper book, total of the column mentioning freight has been given at Rs. 45,953.50 and not Rs. 45,952 as mentioned by the Assessing Officer, which in turn is added to some other rough working given on the same page. He pointed out that there were repetitions of entries on pages 73,74 and 71 of the paper book which had been conceded by the Assessing Officer before the CIT(A). He further explained with reference to the details of bags of potato, a rough working of which is given on page 76 of the paper book that the total of potato bags taken at 7029 was not correct and in fact it would work out to only 6362, because the figures were only 2065 (page 75), 2188 (page 74 after deducting 313 from 2501) and 2109 on reverse of page 74 of the paper book. As for the discussions of the Assessing Officer in the assessment order regarding the explanation of these items given by assessee, Shri Aggrawal clarified that the explanation was with reference to the transactions of the Shobhraj Cold Storage and not with regard to assessee's own case although admittedly the reply was given by the assessee. Shri Aggrawal explained that it was because Shri Kishanchand, who holds 60% share in the assessee-firm is also a partner having 30% share in the Cold Storage and since the matters pertained to the Group Cases, the explanation was being given with reference to the Group Cases and not necessarily with reference to assessee's own case. Shri Aggrawal further submitted that the explanation given by the assessee in this regard was on account of misconception of law about which the assessee became clear only later on. With reference to the observations of CIT(A) in this regard, Shri Aggrawal repeated that the assessee had nothing to do with the transactions recorded in Annexure C-1/46. Shri Aggrawal stated that the CIT(A) had given a finding in the case of Shobhraj Traders, another sister concern that these transactions pertain to that assessee. He pointed out that the CIT(A) on page 6 bottom para 6 of his order has mentioned that it had been argued before him that these entries could be verified from the record of M/s Shobhraj Cold Storage and that all these potato bags were placed in that Cold Storage. He pointed out that all the details given on page 71 of the paper book, namely, regarding the names of the parties freight, truck number, date and number of bags had been found recorded in the books of Shobhraj Cold Storage and hence it was obvious that all these papers pertain to that assessee and the assessee firm has got nothing to do with it. Shri Aggrawal conveyed his protest against the copies of reports submitted by the ACIT to CIT(A) not being supplied to the assessee and hence regretted that they were not being in corporated in assessee's paper book. In this background, the learned counsel submitted that when the entries found recorded in Annexure C-1/46 do not belong to the assesses-firm and do not pertain to its business, no adverse inference could be drawn against the assessee on the basis of those entries. He referred to the decision of the Punjab & Haryana High Court in the case of Smt. Shanta Devi v. CIT [1988] 171 ITR 532 where their Lordships had held that books of account of a firm could not be considered to be books of account of the partner and hence provisions of section 68 were not attracted in such a case. Similarly, in the decision at page 69 in the case of CIT v. Bhaichand H. Gandhi [1983] 141 ITR 67 the Hon'ble Bombay High Court had held that even the Bank Pass Book was not the book of account of the assessee and hence in the instant case there was no justification for making any additions on the basis of entries found in the books of account, which were not recovered from the business premises of the assessee and which did not belong to the assessee. Further, in these circumstances, if the assessee could not explain to the satisfaction of the Assessing Officer the entries in C-1/46 or an attempt was made by Shri Kishanchand who is admittedly a common partner, which also was not found to be satisfactory by the Assessing Officer, it is because the transactions do not pertain to the assessee-firm but to a sister concern viz. M/s Shobhraj Cold Storage and Ice Factory, which cannot be explained by the assessee-firm. Shri Aggrawal vehemently argued that according to the provisions of section 69 and the Law on the subject, the burden was on the Revenue to prove that the documents on the basis of which it is being alleged that the assessee had made investments belonged to the assessee and there is nothing on record to show that the Revenue has discharged that burden. Secondly, Sh. Aggrawal submitted, the burden u/s 69 on the Revenue is also to prove that the assessee had made the alleged investments and only thereafter the question of adding it to the income of the assessee would arise. Shri Aggrawal regretted that the only mistake which the assessee had unfortunately committed was that it had tried to explain the matters in this regard as a Group forgetting that, in fact, these documents did not belong to the assessee, as for the remark of the ACIT quoted on page 9 of order of CIT(A) to the effect that it "appears to be simply an afterthought and concocted story", Shri Aggrawal submitted that it could not be an after-thought when all the entries were found recorded. On the other hand, he claimed that the Assessing Officer had not been able to reconcile that figure of 12,047 bags; the Assessing Officer was not able to explain in his report the exact working of the alleged number of bags and hence he reduced the figure from 12,047 to 11,452. He submitted that use of the expression "it appears" showed that the Assessing Officer had a lurking doubt in his mind and he was not sure about the facts. He further referred to the report of the ACIT [page 10 bottom of order of CIT(A)] where he had stated "it appears the details available on pages 48, 69 and 70 relate to purchases made by the assessee for keeping the same in its Cold Storage". He pointed out that the assessee was doing only Arhat business and it neither possessed nor did any business in Cold Storage. The fact was that the Cold Storage belonged to a sister-concern and the transactions or purchases found in C-1/46 were transactions and entries of the entity which owned the Cold Storage. He further referred to the report of the ACIT quoted on page 12 of order of CIT(A) where the ACIT had stated "thus the Document No. 50 is meaningless" and again "document No.71 of this Annexure is also meaningless ............." Shri Aggrawal strongly protested and questioned how these entries on page 71 (page 76 of the paper book) could be termed as meaningless when the entries of Rs. 3,72,217.10 on the same page were made the basis of addition by the Assessing Officer.

12. Shri Aggrawal also submitted alternative arguments pointing out that even if these were taken to be assessee's own investments, then the figures of investment were only as under :----

Rs. 45,953 Page 71 of paper book reverse

Rs. 2,166 Page 72 of paper book

Rs. 751 Page 74 of paper book

Rs. 633 Page 74 of paper book reverse

Rs. 2,065 Page 75 of paper book

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Rs. 51,568

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Regarding the amount of Rs. 3,72,217, the learned counsel argued that when that document (Page 71 of C-1/46 given on page 76 of paper book) was reported to be meaningless by the ACIT, no addition could be made on the basis of that document. Shri Aggrawal further referred to the observations of the CIT(A) at the end of para 7 (page 13 of his order) to the effect that the assessee could not prove that 683 bags, kept in Shobhraj Cold Storage belonged to the parties in whose names they were entered in the Inward Register of the Cold Storage. The learned counsel questioned that if the assessee was not able to prove as to whom the 683 potato bags, duly recorded in the books of Shobhraj Cold Storage belonged, how could they be treated as belonging to assessee. Regarding the entries of freight of Rs. 3,72,217, he further pointed out that if that figure was taken as assessee's investment, what treatment was to be given to the entry regarding the receipt of bahara amounting to Rs. 3,73,732.85. He argued that the burden of proving that what was recorded in those papers was not correct was on the Revenue, which it had failed to discharge. Regarding the treatment given by the CIT(A), the learned counsel argued that since the Potatoes were kept in the Cold Storage, it was obvious that the sales had not taken place, at least no evidence or presumption regarding sale was adduced or argued and hence there was no basis for working out the profits on the assumed sales by the CIT(A) and the Revenue. Shri Aggrawal clarified on a question from the Bench that the assessee had never owned the Potato bags but had only explained that the 683 bags even as per the documents were kept in Shobhraj Cold Storage and belonged to other parties.

13. Shri Aggrawal reiterated that in this case clearly the documents on the basis of which additions had been made did not belong to the assessee-firm nor were they discovered from assessee's premises. Secondly, the Assessing Officer himself had reported that the entries related to purchases made by the assessee for keeping the same in its Cold Storage which would clearly show that they belong to an entity which owned a Cold Storage. Thirdly, the figures reported as 7029 were wrong, as already discussed and hence he claimed that the entire addition made by the Assessing Officer and substituted by the CIT(A) should be deleted.

Further, the inferences drawn by the ACIT were wrong because when the payments were recorded and noted as freight and labour charges on pages 48, 69 and 70 (pages 71, 74 and 75 of paper book) how could the amount of Rs. 3,72,217 be treated as purchases as reported by the ACIT and quoted by the CIT(A) (as mentioned earlier in this order) and as in para 1 of the report as quoted on page 9 of order of CIT(A). "I may, however, be permitted to submit that credits appear to represent sales whereas debits appear to represent cost of Potatoes, freight and Mazdoori". Shri Aggrawal submitted that by now it was an accepted principle of law, suspicion, howsoever strong, cannot take the place of proof and hence merely on the basis of suspicions no addition could be sustained.

14. He finally summed up his arguments by saying that firstly the assessee was not found in possession of the documents marked as C-1/46; secondly, the A/R of the assessee had accepted only the working of the figures but not that they belonged to the assessee and that was firstly under a mistaken conception of law and secondly because these were all group cases and the facts and arguments of one case could overlap with the facts and arguments of the other case; thirdly, there was no evidence to prove that the assessee had incurred any expenditure as alleged by the Revenue; fourthly, no goods on the basis of which the additions had been made were discovered during the course of search and, fifthly, there is not even a statement of any person to the effect that these transactions or the goods mentioned in the impugned papers belonged to the assessee-firm.

15. The learned Senior Departmental Representative, on the other hand, argued that it was obvious from the papers placed at pages 71 to 76 of the paper book that the papers belonged to the assessee-firm as M/s Kishanchand Shobhrajmal is written on the top of those papers and that proves that they belong to the assessee firm and not to any other firm of this group. Therefore, the arguments of the counsel for the assessee that they belonged to the Cold Storage etc. has no basis. As per the stand of the Revenue that the transactions noted on pages 71, 73, 74 and 75 of the paper book do not represent merely freight and labour charges but represent purchase of Potatoes from different parties, he argued that since no signatures of the parties whose goods were claimed to have been put in Cold Storage are available on those papers, it could not be accepted that these goods belonged to some other parties and not the assessee. Shri Kundra argued that initially the assessee had taken the plea that these goods were placed in Shobhraj Cold Storage but since there was no sufficient space available there, they were transferred to M/s. Heera Cold Storage. However, Sh. Kundra pointed out, that those potatoes were not found in Heera Cold Storage and hence the question arises as to where they had disappeared.

16. Further according to Sh. Kundra, the inference was obvious that the labour charges mentioned @ 0.30 p. per bag on page 74 of the paper book @ Re. 1 per bag on page 75 of the paper book were paid to labour in the process of selling those goods in the market which could also be inferred from the fact that the assessee and assessee's group was doing that particular business. Regarding the entries of Rs. 3,73,732.85 "bahara aya" and Rs. 3,67,419 freight found recorded on page 76 of the paper book, the learned senior D/R claimed that the arguments of the counsel for the assessee were misleading. He submitted that it could be inferred this was a record of purchases. He pointed out that if it was bahara receipt and payment, the details should have been written and if they did not pertain to assessee's business, why should the assessee have indulged in all this work when the assessee itself was so busy. He pointed out that on page 74 of the paper book, the last two items of bags numbering 155+158=313 were ticked whereas others were marked with 'X' Mark. He submitted that this might have been done because these two quantities of bags had been diverted and thus the total number of bags involved was 2501 and not 2188, as claimed by the learned authorised representative. In these circumstances relying on the orders of authorities below the ld. Sr. D/R reiterated that all these items were unexplained investments of the assessee and the additions sustained by the learned CIT(A) be confirmed.

17. We have carefully considered the rival submissions and have perused the material on record. In the first instance, we find substantial force in the arguments of the learned counsel for the assessee that there is no evidence brought on record by the Revenue to establish that the papers marked as C-1/46 were recovered from the business premises of the assessee. While Shri Aggrawal had repeatedly and emphatically affirmed that these papers were not recovered from the premises of the assessee-firm but were recovered from the premises of the Shobhraj Cold Storage, there is no evidence adduced by the Revenue to prove that they were recovered from the business premises of the assessee-firm, except what is written in the assessment orders. We have examined the photo copies of various pages of the impugned documents and we do not find at any place any acknowledgement on behalf of the assessee that these papers were recovered from its premises. It is true that no copy of the Panchnama or any other document proving that these documents were recovered from the business premises of the assessee, has been filed before us by the Revenue. Regarding the argument of the learned Sr.D/R that on all the pages running from pages 71 to 76 of the paper book the name of the firm has been given on the top, we may point out that only on pages 71 and 72 of the paper book, the name of the assessee firm has been given on the top while on pages 73, 74, 75 and 76, no such name has been given. Even on page 72 of the paper book whereas on the top, the name of the assessee firm has been given-, at the bottom there is a Stamp of M/s Shobhraj Cold Storage and Ice Factory, a fact which was pointed out by Shri Aggrawal in his reply. In our opinion since, as rightly pointed out by Shri Aggrawal, the entire case of the assessee would depend on its proving as to whether these documents were recovered from the possession of the assessee or not, the Revenue should have adduced some cogent and reliable evidence to conclusively prove that these documents were recovered from the premises of the assessee. This is so in spite of assessee's plea to this effect before CIT(A) as mentioned by him in his order dt. 14-12-1989 for AY 1986-87 where similar issues were involved. We are conscious that the Assessing Officer had mentioned in the assessment order that these documents were recovered from the business premises of the assessee but we find that there are several observations and findings of the Assessing Officer, which later on, he himself conceded to be wrong while submitting his report to the CIT(A), as for example, the number of Potato bags, reconciliation of names of parties in Annexure C-26 etc. We further find force in the arguments of Shri Aggrawal to the effect that when Shri Kishanchand was a common partner in at least three firms including the assessee and the Shobhraj Cold Storage and when it is an undisputed fact that the searches were conducted at all the business premises and residential premises of the group of assessees and the partners to which the assessee belongs, it should not have been very unlikely and unnatural that Shri Kishanchand or the persons representing the assessee-firm should have made sincere efforts to explain all the documents belonging to the group which were discovered at the time of search not realising that these particular papers did not specifically belong to the assessee-firm or that they were not recovered from the business premises of the assessee-firm. In these circumstances, in our opinion, the case of the Revenue would fail even on this single ground that the Revenue has not brought any evidence on record to prove that the documents marked as C-1/46, on the basis of which additions of Rs. 6,87,240 have been sustained by the CIT(A), were recovered from the business premises of the assessee. This is because the entire additions are based on the presumption raised u/s 132(4A). Section 132(4A) comes into operation only when it is established that the books of account or other documents were found in the possession or control of the assessee in the course of the search. If this basic requirement is not fulfilled, the adverse presumptions to the effect that the books belong to the assessee and that the contents of those books and documents are true can also not be drawn. Accordingly, this one ground alone would be sufficient to delete these additions. We shall, however, take into account other evidence and facts and circumstances brought to our notice, which also would lead to the same conclusion.

18. We have already discussed while dealing with the addition of Rs. 4,60,290 in the earlier part of this order that presumption u/s 132(4A) cannot be drawn only with regard to the part of a document by ignoring other part of the same document. Moreover, if it is very clearly and legibly written on the documents available in tabular form that they show the details as under:

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Freight Name of the Party Bags Truck No. Dated Remarks

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and the column give the amount of freight, name of the party, number of bags, truck Nos. and dates according to the columns mentioned above, the presumption as provided in section 132(4A)(ii) would be that the contents of such books of account and other documents are true. In turn, it would mean that the number of bags mentioned against each party belonged to that party which were transported by the truck, registration number of which has been given on that paper, that they were brought on the date mentioned therein and that the amount of freight mentioned on them was paid. In fact, the document on page 72 of the paper book shows that on the top, name of Kishanchand Shobhraj, i.e., the assessee firm is given, below that is written in Hindi to the effect that "please credit to our account after charging from Shri Gulzarilal Thekadar of Kakhanpur Rs. 166.50 in respect of the sorting, filling and sutli expenses in respect of potatoes of that party." Below that is also written truck freight Rs. 2,000 total Rs. 2,166.50 and it bears the stamp of M/s Shobharj Cold Storage and Ice Factory. This makes it clear that this could not be the purchase or investment of the assessee. The assessee had at best acted as an agent of its sister-concern, namely, Shobhraj Cold Storage for collecting the expenditure, which the Shobhraj Cold Storage had incurred for sorting, filling and sutli charges in respect of potatoes of Shri Gulzarilal Thekadar, a process which is known to be a routine and necessary process followed by every Cold Storage. Next page No. 73 of the paper book also has similar entries in respect of bags, and truck no. and has common entries with some other pages which has been conceded by the ACIT in his report to the CIT(A). However, as pointed out by Shri Aggrawal and noticed by us that none of the pages numbered 73 to 76 of the paper book anywhere mentions the name of the assessee. On the other hand, the notings on the top of page 74 to the effect "rate 0.30 paisa per bag" and on the top of page 75 to the effect "labour charges Re. 1 per bag" read in conjunction with the narration on page 72 of the paper book referred to earlier, would only indicate that on page 74 the amount charged is in respect of filling charges or any other charges @ 0.30 p. per bag. Thus, for example, the document at page 74 of paper book shows that the amount-column shows Rs. 46.20 for 154 bags, which are exact charges for them @ 0.30 paisa. Rs. 52. 50p. for 175 bags and so on. Similarly, in respect of entries on page 75 of the paper book @ Re. 1 per bag, Rs. 140 are shown for 140 bags, Rs. 151 for 151 bags, Rs. 165 for 165 bags and so on. On the reverse side of page 74, the totals of labour charges on different pages have been done at Rs. 4,797.40 which is the exact figure which is found noted on the right hand side below freight on page 76 of the paper book. Thus, the presumption which would be raised from these documents may be that the person from whose possession these documents were found had been paying some charges @ 0.30 p. per bag and the labour and other charges one rupee per bag and the total of such labour charges worked out to Rs. 4,797.40 p. Further, he had paid Rs. 3,67,419.70 as freight as noted on right-hand side on page 76 of the paper book. This figure can be verified on the working of the reverse side of page 71 of the paper book where initially a total of Rs. 3,65,975.60 has been worked out as freight charges. Thereafter, on the same page the figure of Rs. 3,67,419.70 has been deducted from the figure of Rs. 3,73,732.85 p. which figure is noted as "bahara aya" on left-hand side of page 76 of the paper book. It would not be correct and there appears to be no basis or any corroborative evidence or any circumstantial evidence to presume that all those goods and potato bags were the investments made by the assessee. Had that been so, it should not have been necessary to mention all the details regarding the names of the parties, the truck no., the freight and the labour charges paid and in several documents, these names, truck nos., number of bags and date being repeated. This situation would arise only when the person to whom these documents belonged had been keeping and managing these goods for those parties whose names are written therein. In other words, when the goods of those parties are received and some payment is made for the freights, it is noted against the name of that party along with the number of bags and the Registration number of the truck by which they had arrived. Similarly, when the labour charges are paid for filling in the Cold Storage or by removing them from the trucks or for some other reason, those labour charges are noted against the name of that party giving the amount of labour charges. Further, if this had really been the investment of the assessee as alleged by the revenue, if so many details regarding the truck number, the labour charges amounting to such small figures as Rs. 42.20 p. was being written, it should have been natural that the assessee must have mentioned the total amount paid for purchasing those potato bags, if they were purchases or should have mentioned the amount of sale proceeds, if they were sale proceeds. But since no such amount is mentioned against any item on any page, we cannot subscribe to the inferences drawn by the Revenue and by the learned CIT(A) that all these amounts represent the sale transactions of the assessee. Even if we don't accept the argument of Shri Aggrawal that documents marked as C-1/46 were not recovered from the business premises of the assessee, and proceed on the assumption that they were found in the possession of the assessee at the time of search, the presumption that could be raised would be that all these entries and transactions pertain to the business of the assessee. The business of the assessee is admittedly doing Arhat in Onions and Potatoes. There is no evidence that in any transactions the assessee sold goods as his own business. A good number of documents have been filed before us, namely, Affidavits of agriculturists pages 160 to 161 from one Mohd. Aslam, District Aligarh (U.P.), pages 163 to 164 of Shri Hari Shankar, Etmadpur, Distt. Agra, pages 171 to 172 from Shri Padam Kumar Jain, Distt. Agra and at pages 167-168 of Shri Sarnam Khan, Distt. Mathura (U.P.), who have confirmed the transactions found noted in their names and which are given on pages 77 to 84 as Annexure B-7 and B-8 of the paper book and which are admitted by the assessee to have been discovered from its business premises which only show that they were Arhat transactions. Those parties have also confirmed that very often they would pay the money to the assessee or they would take some money from the assessee, if and when required. We are referring to all this on the assumption that even if these documents, namely, C-1/46 are accepted to have been recovered from the business premises of the assessee it cannot be presumed that all the potato bags were purchased or sold by the assessee in its own account for which it had invested money at one point of time without circulation of money and that it had been paying freight charges on behalf of the agriculturists for the entire year and suddenly at the end of the year it realised in one lump sum an amount of Rs. 3,73,732.85. In our view, even if a presumption is raised, we have to keep in mind the normal human conduct, the prevalent trade and business practices and the common course of natural events. In that view of the matter the normal trade practice would be that if and when the freight is paid by an Arhatia, it is realised as soon as the goods of the constituent are sold by him. It is a known fact that a person who is dealing as Arhatia would not be accumulating or storing the goods for the entire year. If that has to be done that is done by either the constituent himself by storing the goods in some Cold Storage or sometimes by persons running Cold Storages who purchase potatoes from the agriculturists and store them in the Cold Storage to be sold at the proper time when the prices are higher. That is what is indicated by those parties belonging to U.P. who have filed their affidavits referred to above. In these circumstances, it would not at all be fair to presume that the entire investment for payment of freight and labour charges was made throughout the year but the entire realisation was made in one day by the Arhatia. Such a presumption would be against the common business practice and normal human conduct. In other words, even if the worst is assumed against the assessee for which also we don't have any reasonable basis, it can be inferred that whereas the assessee had realised by way of Bhada and Baraf charges Rs. 3,74,412.85, it had incurred only Rs. 3,72,217.10 as expenditure and the difference of Rs. 2,195.75 is assessee's business income which is not recorded in assessee's regular books of account. However, the fact that the transactions show that some charges @ 0.30 p. and labour charges @ one rupee per bag were paid; that Shobhraj Cold Storage had requested the assessee to collect Rs. 2,166.50 from Sb. Gulzarilal Thekadar and to credit it in their account for sorting and filling the potatoes would indicate that these transactions pertain to person dealing in Cold Storage rather than in Arhat business. This presumption is further strengthened by the fact that an amount of Rs. 680 below the figure of Rs. 3,73,732.85 on page 76 of the paper book has been shown as receipt for Baraf or ice and an Arhatia, even if he is doing business on his own account also, would not be charging or receiving payments for ice, particularly when no expenditure on ice has been shown. The normal inference would be that they are the accounts of some Cold Storage and Ice Factory, which has not to incur expenditure separately on ice but who may recover charges from the constituents for providing ice in the process of keeping the Potatoes in Cold Storage. There is nothing to show that the assessee was doing any Cold Storage business. The ACIT also reported that the purchases recorded on pages 48, 49 and 70 (pages 71, 72 and 73 of the paper book) relate to purchases made for keeping the same in Cold Storage and hence they cannot belong to the assessee who is doing Arhat business but may belong to Shobhraj Cold Storage which is running a Cold Storage.

19. Taking all these factors into account, we firstly hold that the Revenue has not been able to establish that the documents mentioned as C-1/46 were found in the possession or control of the assessee, as provided in Section 132(4A) and hence the additions made on that basis cannot be sustained. Secondly, even if they are presumed to be belonging to the assessee, the assessee has given a reasonable explanation, about them all be it on behalf of Shobhraj Cold Storage, and on that basis also the presumptions and inferences drawn by the Revenue to the effect that these transactions represent assessee's investments in purchase and sale of potatoes cannot be upheld and hence the addition of Rs. 6,87,240 sustained by the CIT(A) is directed to be deleted.

20. The next objection of the assessee is that the CIT(A) has sustained an addition of Rs. 1,00,000 as notional income on the money supposed to have been recovered by the assessee on sale proceeds of Potatoes on the basis of which he had sustained an addition of Rs. 6,87,240 to the income of the assessee. Since we have deleted the addition of Rs. 6,87,240 as per our decision in the preceding paragraph of this order, there remains no basis for sustaining the addition of Rs. 1 lac and hence this is also directed to be deleted.

21. In the same Ground of Appeal, the assessee has also objected to the decision of the CIT (Appeals) to restore the matter to the file of the Assessing Officer to determine the interest income earned by the assessee on the amount of Rs. 4,60,290 which addition had been sustained by the CIT(A). Since as per para-7 of this order, we have deleted the addition of Rs. 4,60,290 there remains no basis for working out the interest on that amount for being added to the income of the assessee and hence these directions of the CIT(A) are also directed to be cancelled.

22. Next objection of the assessee is regarding charging of interest u/s 217(1A) of the IT Act. It was pointed out by Shri Aggrawal that a large number of High Courts had already held that interest u/s 217(1A) could not be charged in re-assessment proceedings. He submitted that this issue stands concluded in favour of the assessee so far as Rajasthan is concerned by the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Multi Metals Ltd. [1991] 188 ITR 151 and hence the interest should be directed to be deleted. We agree with the submissions of Shri Aggrawal and direct that no interest should be charged u/s 217(1A) in this case. Even otherwise since all the additions made by the Assessing Officer have been deleted, there remains no basis for charging interest under section 217(1A) and for this reason also interest charged u/s 217(1A) is directed to be deleted.

23. Accordingly, the appeal filed by the assessee is allowed

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