1999-VIL-114-ITAT-MUM

Equivalent Citation: 2000 (72) ITD 340

Income Tax Appellate Tribunal MUMBAI

IT (SS) Appeal No. 173/Mum/1997

Date: 11.03.1999

D.A. PATEL

Vs

DEPUTY COMMISSIONER OF INCOME-TAX

For the Petitioner : N. R. Prabhu
For the Respondent : D. J. Tralshawala

BENCH

M. A. Bakshi (Judicial Member) And M. V. R. Prasad (Accountant Member)

JUDGMENT

M. V. R. Prasad (Accountant Member)

This appeal is directed against the order of the Assessing Officer dated 31-7-1997 passed under Section 158BC(c) of the Income-tax Act for the block period 1-4-1986 to 15-7-1996.

2. Late Shri A. K. Patel and his group were mainly engaged in the business of automobile spare parts and in electronic goods, financing etc. He was the director of certain companies which are given by the Assessing Officer in page 2 of his order.

3. The Assessing Officer mentioned that a search action was conducted at the residential and business premises of the late Shri A. K. Patel on an allegation that his group advanced unaccounted loans on hundies to Shri C. D. Shah group of cases which were engaged in the business of real estate and building construction. The search was conducted on 15th and 16th of July, 1996, Simultaneously, a search was conducted at the premises of Shri C. D. Shah also. In the course of the search, 34 hundies of various dates and amounts were found aggregating to Rs. 1,61,72,000. The details of these hundies such as (a) the party who issued it, (b) the party in favour of whom it is issued, (c) the date of issue, and (d) the amount of the hundi in respect of the 34 hundies in question are given by the Assessing Officer at pages 3 to 5 of his order. While they bear the signature of the party who issued it, some of the hundies are blank either in respect of the party in favour of whom it issued or the date of issue, or both. It may also be clarified that in respect of the said 34 hundies aggregating to Rs. 1,61,72,000, what were located during the search were only photocopies and not originals.

4. The search party also located certain documents during the search and one of the documents included in the Panchnama as Sheet 41 of Annexure A-3 read as follows :-

"R.S.
	J. Chittarajan and Co.	Outstandings
0.72	1-1-1992
2.70	1-1-1992
5.00	1-1-1992
4.00	1-1-1992
7.50	1-1-1992
7.50	1-1-1992
4.00	1-1-1992
4.00	1-1-1992
5.00	1-1-1992
5.00	1-1-1992
5.00	1-1-1992
5.00	1-1-1992
5.00	1-1-1992
10.00	1-1-1992
15.00	1-1-1992
10.00	1-1-1992
15.00	1-1-1992
5.00	1-1-1992
5.00	1-1-1992
1.00	1-1-1992
2.50	1-1-1992
2.50	1-1-1992
2.50	1-1-1992
2.50	1-1-1992
2.50	1-1-1992
2.50	1-1-1992
136.42
24.55	Int. calculated from 1-1-1992 to 31-12-1992 @ 18%
160.97	on 136.42
28.97	Int. 1-1-1993 to 31-12-1993 @ 18% on 160.97
189.94
34.18	Int. 1-1-1994 to 31-12-1994 @ 18% on 189.94
224.12
40.34	Int. 1-1-1995 to 31-12-1995 @ 18% on 224.12
264.46

Another sheet located and seized during the search inventorised as Sheet 40 of Annexure A/3, reads as follows :-

"(1)	2,64 - 46000	A. K. Patel
(2)	16 - 28000	J. B. Patel
(3)	1 - 60-838	H.M.Patel H.U.F
(4)	5 - 66-061	Darshana Agencies
	2 ,88 - 0-919
	3 - 32 661
	2,91 - 33 580

Total Up to 31-12-1995"

There were other hundies and documents which were seized and they will be referred in due course in this order. The late Shri A. K. Patel was examined during the course of the search and he mentioned in his deposition, which may be seen at pages 96 to 98 of the Appellant's Paper Book (APB), as follows :-

"Q. 8 Pages 41 of loose paper file marked A-3 shows that total amount outstanding from J Chittaranjan and Co. as on 1-1-1992 was Rs. 136.42 lakhs. Interest for the period 1-1-1992 to 31-12-1995 @ 18% was included to the above outstanding, and the same comes to Rs. 264.46 lakhs as on 31-12-1995. This page is also supported by the Xerox copies of hundies found. Hence it implies that a sum of Rs. 136.42 lakhs was advanced by you in cash. What do you have to say about this.

Ans. According to me around Rs. 48.75 lakhs were advanced in cash to M/s. J. Chittarajan and Co., of which Shri C. D. Shah is the major partner, about ten years approximately i.e., around 1985 or 1986 and so. After including the interest over the years the amount has ballooned to Rs. 136.42 lakhs.

Q. 9 Please not that the date mentioned in the hundies, referred to above, are 1-10-1990 and of 1991 and 1992 with a few exceptions at pages 13, 10 and 8 on which the date 1-4-1988 is also mentioned. In that case how do you say the money was given in and around 1985 or 1986.

Ans. My son Shri D. A. Patel can answer the question. As I can recollect that I have lent Rs. 48.75 lakhs around 1985 or 1986 and I am not aware of the subsequent developments.

Q. 10 Was there any search action under section 132 of the Income-tax Act prior to this action in your case. If so, when.

Ans. Yes, there was a search action under section 132 of the Income-tax Act somewhere in 1989.

Q. 11 if I accept your earlier statement noted above as regards the loan of Rs. 48.75 lakhs as given in and around 1985 or 1986, then, whether you had surrendered the above amount during the search action in 1989.

Ans. No.

Q. 12 In addition to the hundies of 1.3642 crores mentioned earlier (given to J. Chittaranjan and Co.) it is also seen that you have given loan to Meghna enterprise for which the hundies (zerox copies) have been found. The details of which are as under :

Sr. No.	Pg. No. in Annexure A-3	Amount	Date
1	3	4.00
2	4	4.00
3	5	4.00
4	6	4.00
5	7	4.00	1-1-1993
6	16	4.55

Kindly state to whom Meghna Enterprise belong and when the amount was advanced.

Ans. Meghna Enterprise might belong to Shri C. D. Shah the amount given in these hundies is included in the 48.75 lakhs, stated by me earlier."

In his subsequent deposition dated 30-8-1996, which may be seen at pages 100 and 101 of the APB, the late Shri A. K. Patel was questioned on Sheet No. 40 of Annexure A-3 reproduced hereinabove, and his replies in this context were as follows :-

"Q. 2 I am confronting you with the loose paper folder marked Annexure A-3 seized from your residence vide Panchnama dated 16-7-1996. Please refer Page No. 40 and identify the person who has written it i.e., in whose handwriting is the paper. Also explain the contents thereof.

Ans. I do not know in whose handwriting it is written. The figures 2,64,46,000 is the amount of Rupees which is arrived at after including the interest on the amount of Rupees lent by me to Shri C. D. Shah. I have already explained this matter to my son D. A. Patel. He may give further clarification if required. As regards Heena Y. Patel appearing in the page, I will try to get the details and submit it later. Regarding other names the same may be enquired from the concerned persons.

Q. 3 Do you have any evidence in support of the loan advancing.

Ans. No, as it is unaccounted."

Shri C. D. Shah was also examined during the search itself if respect of loans obtained by him from the late Shri A. K. Patel and in his deposition dated 15-7-1996, which may be seen at pages 102 to 108 of the APB, his replies were as follows :

"Q. 4 "Do you know Shri A. K. Patel of M/s. Central Automobile Ltd. and M/s. Central Automobile (India). If so, in what connection ?

Ans. I know Mr. A. K. Patel. I have dealings with Mr. A. K. Patel. I know M/s. Central Automobiles Ltd. and Central Automobile (India) Ltd. But don't have dealings with both of these concerns.

Q. 15 How much you have borrowed from Mr. A. K. Patel and whether you have received any Hundi from Mr. A. K. Patel towards loan ?

Ans. Yes, I have borrowed and took loan from Mr. A. K. Patel in the way back 1986-87 (Approximately Rs. 25,00,000) (Rupees twenty five lakhs) at the interest rate of 24% per annum and it should be compounded quarterly. I have to state that the interest component, so compounded have also been converted into Hundies. Further, so far I have not paid any interest on unaccounted component of Hundies (original hundi) which runs into Rs. 15,00,000 (Rupees fifteen lakhs), nor any interest component on cash Hundi is paid. Therefore cash Hundies for further interest have been issued by me. It is to be stated further that I have already paid back sufficient portion of accounted component of loan and interest thereupon.

Q. 16 You say that the Hundi taken in cash was to the extent of Rs. 15,00,000 (Rupees fifteen lakhs) and it was taken in the year 1986-87. The interest accrued have also been converted into Hundies for the entire period from 1986-87 till date. Please state then what is the total amount payable to Mr. A. K. Patel by way of Hundies raised in cash, out of loan and interest therefrom ?

Ans. You can very well work out the total amount of Hundies issued by me in cash, on account of the above as given to Mr. A. K. Patel from the above data which I have already stated in answer to your question No. 15. But according to me the total amount in cash should not exceed Rs. 2 crores (Rs. 2,00,00,000). However, this is subject to verification.

Q. 17 Please state whether you are keeping any record of Hundies which are unaccounted ?

Ans. I state that I Have issued those Hundies. But I have not kept any record of them but original Hundies are with Mr. A. K. Patel.

Q. 18 Do you have any other transactions with Mr. A. K. Patel ?

Ans. Besides above, I do not have any transactions with Mr. A. K. Patel.

Q. 19 What is the total amount of latest Hundi have you issued during the last Financial Year and if so when it was issued ?

Ans. The latest Hundi was issued in between December 1995 and January 1996. The total amount for which I have issued Hundi in cash to Mr. A. K. Patel and M/s. Central Automobiles Ltd. is more than 2 crores of rupees (Rs. 2,00,00,000). However, the

exact amount is subject to verification and I will accept the exact amount.

Q. 20 Please state what are the other Hundies in cash you have issued to parties other than Mr. A. K. Patel ? Please state the total unaccounted hundies issued.

Ans. There are no other Hundies in cash.

Q. 21 Are you sure that there are no other Hundies in cash except of Mr. A. K. Patel ?

Ans. Yes I am sure there are no other Hundies in cash."

In his statement taken next day, i.e., on 16-7-1996, which may be seen at pages 109 to 115 of the APB, Shri C. D. Shah deposed in respect of the hundies given to the late Shri A. K. Patel as follows :-

"Q. In your preliminary statement you have stated and accepted the fact that you have issued a hundi of Rs. 2 crores (Approximately) to Mr. A. K. Patel of Central Automobiles (P) Ltd. between December 1995 and January 1996. As you have stated hundies in cash have been issued for the cash money you have received from Mr. A. K. Patel and compounded interest money thereupon. This unaccounted money has been used by you in your business which means that those will be unexplained investment made in the business, as per Income-tax Act since you have already raised unaccounted hundies more than 2 crores, which thereby will be your unexplained investments. Please explain this.

Ans. In my preliminary statement itself, I have stated that I have received Rs. 15,00,000 in cash for which the hundies were given to Mr. A. K. Patel. However, as I could not/was not paying interest quarterly compounded, the principal amount of Rs. 15,00,000 plus interest may be Rs. 2 crores. Moreover, in my preliminary statement I have mentioned that in 1986-87 (Approximately) but it is before 1984-85. So the principal amount was only Rs. 15 lakhs in cash.

Q. 28 What about Hundies raised in cash for interest, what will be its nature ?

Ans. Hundies raised for interest - quarterly compounded were added to the principal amount and old hundies were destroyed.

Q. 29 Whether you feel you have got any unaccounted money either in your name or in your firm's name ?

Ans. No please."

Shri D. A. Patel, son of the late Shri A. K. Patel, was also questioned on these hundies and the relevant portion of his deposition is given by the Assessing Officer at pages 10 to 13 of his order. He deposed that Sheet No. 40 of Annexure-A-3, reproduced hereinabove, was written by him as per the instructions of his father. He mentioned that his father had told him that he had advanced Rs. 25 lakhs to Shri C. D. Shah in the year 1980-82 and that Shri Shah had not paid any interest thereafter, nor, nor returned the principal. He deposed that the amount of interest and the principal put together amounted to approximately Rs. 2,64,46,000 and he also said that this figure was mentioned on the basis of the figure appearing at Sheet No. 41 of Annexure-A-3. There is an unequivocal admission that the contents of sheet No. 41 and 40 of Annexure-A-3 represented the amounts of the principal and the interest receivable from Shri C. D. Shah.

In the light of the depositions of the late Shri A. K. Patel, his son Shri D. A. Patel, and of Shri C. D. Shah, the Assessing Officer came to the conclusion that the amount of Rs. 2,64,46,000 figuring on sheet No. 41 of Annexure-A-3 represented the unaccounted principal and interest in respect of the hundies relating to the assessee upto the period 31-12-1995 and, accordingly, he brought to tax the same as income under the head "Other sources", along with the estimated interest for the balance of the period upto the date of search, i.e., 1-1-1996 to 15-7-1996, on the said amount of Rs. 2,64,46,000, which is worked out at Rs. 25,78,485. He added this amount of Rs. 25,78,485 also as income under the head "Other sources".

5. Before the Assessing Officer, it was pleaded that the late Shri A. K. Patel had advanced to Shri C. D. Shah only Rs. 25 lakhs initially and in support of this claim, a statement which read as follows was filed :-

"Amt. Due as on 31-12-1981	26,06,000
Int. for the period - 1-1-1982 to 31-12-1982	4,69,000
	30,75,000
Int. for the period - 1-1-1983 to 31-12-1983	5,53,000
	36,28,000
Int. for the period - 1-1-1984 to 31-12-1984	6,53,000
	42,81,000
Int. for the period - 1-1-1985 to 31-12-1985	7,71,000
	50,52,000
Int. for the period - 1-1-1986 to 31-12-1986	9,10,000
	59,62,000
Int. for the period - 1-1-1987 to 31-12-1987	10,73,000
	70,35,000
Int. for the period - 1-1-1988 to 31-12-1988	12,67,000
	83,02,000
Int. for the period - 1-1-1989 to 31-12-1989	14,95,000
	97,97,000
Int. for the period - 1-1-1990 to 31-12-1990	17,64,000
	1,15,61,000
Int. for the period - 1-1-1991 to 31-12-1991	20,81,000
	1,36,42,000
Int. for the period - 1-1-1992 to 31-12-1992	24,55,000
	1,60,97,000
Int. for the period - 1-1-1993 to 31-12-1993	28,97,000
	1,89,94,000
Int. for the period - 1-1-1994 to 31-12-1994	34,18,000
	2,24,12,000
Int. for the period - 1-1-1995 to 31-12-1995	40,34,000
	2,64,46,000

It may be observed that the amount of Rs. 2,64,46,000 figuring in the above statement is the same amount figuring on Sheet No. 41 in Annexure-A-3 which was seized during the search. The Assessing Officer rejected the above claim that the initial advance was only Rs. 25 lakhs and that this advance fell before the commencement of the block period on the ground that it was only a convenient and self-serving back calculation.

6. Before us, the learned counsel for the appellant reiterated the contention that the amount originally advanced was only Rs. 25 lakhs and that it fell beyond the block period and as such it is not taxable. So far as the accumulation of interest on the advance is concerned, it is pleaded that the appellant had not received any interest subsequent to the advance of Rs. 25 lakhs in 1981 and that the relations between the appellant and Shri C. D. Shah were not good and so neither the principal nor the interest could be received till date. It is also pleaded by the learned counsel for the appellant that the concept of real income, though diluted, still rules the roost and it is pleaded that no addition can be made unless income has really accrued. In this context, reliance is placed upon the decision of the Hon'ble Madras High Court in the case of Commissioner of Income-tax vs Motor Credit and Co. (P.) Ltd . ( 1981 ) 127 ITR 572/6 Taxman 63 in which it was held that the method of accounting cannot determine the range of taxable income or the ambit of taxation and no income can be brought to tax on the basis of hypothetical accrual of illusory interest. Similarly, reliance is also placed upon the decision of the Punjab and Haryana High Court in the case of Commissioner of Income-tax vs Ferozepur Finance (P.) Ltd. ( 1980 ) 124 ITR 619/4 Taxman 439 where it was held that when the debtor is in huge arrears of tax liabilities and his financial position is not sound, interest income cannot be brought to tax on the basis of accrual. Similarly, reliance is also placed on the jurisdictional High Court decision in the case of Western India Oil Distributing Co. Ltd. vs Commissioner of Income-tax ( 1994 ) 206 ITR 359 where at page 365 of the Report it has been observed that whether an accrual of income has taken place or not is to be judged on the real income theory. Adverting to the fact that no hundies were found during an earlier search conducted on the appellant in 1989, the learned counsel mentioned that no adverse inference could be drawn against the appellant on the basis of this finding. Simply because nothing was found in a search action, it does not follow that the advance was not made before the block period, as claimed. Referring to the contention of the Assessing Officer that the appellant himself had accepted on the date of the search that he had advanced about Rs. 48.75 lakhs in 1985 or 1986 in reply to Question No. 11 of his deposition on 16-7-1996 which we have extracted hereinabove, it is pleaded that the late Shri A. K. Patel was suffering from Cancer at the time of search and so too much importance should not be given to his statement.

7. The learned Departmental Representative, on the other hand, pleaded that the late Shri A. K. Patel had mentioned that he had advanced Rs. 48.75 lakhs in 1985 or 1986 at the time of the search, whereas Shri C. D. Shah in his deposition on the date of the search had referred only to the receipt of Rs. 25 lakhs. It is also mentioned that while the late Shri A. K. Patel had mentioned the rate of interest as 18%, Shri C. D. Shah had mentioned it as 24%. In view of the variation in the statements of the creditor and debtor concerned, it is claimed that these statements, which cannot easily be reconciled, should be ignored, except to the extent that monies had really been advanced by the late Shri A. K. Patel to Shri C. D. Shah and we should go by the documentary evidence located during the search by way of photocopies of hundies and other papers. It is also mentioned that the late Shri A. K. Patel had given coherent answers on the date of the search to all the questions and his admission that he had advanced monies to Shri C. D. Shah cannot be ignored. It is also pleaded that while the late Shri A. K. Patel had mentioned that his son knew the details of the transactions in question and also the location of the original hundies, his son gave only evasive replies when confronted with the seized papers. It is mentioned that both son and father had washed their hands off the transactions, each throwing the responsibility on the other. It is also pleaded that Shri C. D. Shah had clearly acknowledged his debt and he had also mentioned that he had given fresh hundies in lieu of payment of interest and as such there was a constructive receipt of interest. He had also relied upon the decision of the jurisdictional High Court in the case of Bhojraj Kishanchand vs Commissioner of Income-tax ( 1994 ) 209 ITR 500/73 Taxman 602 ( Bom ) and contended that where the explanation given by the assessee contained missing links and was not supported by relevant documentary or other evidence, the addition is justified.

8. We are of the view that there is merit in the contentions of the learned DR, though we are of the view that the entire addition of Rs. 2,90,24,485 mentioned hereinabove cannot be sustained. According to us, what can be sustained is only the figure of Rs. 1,60,97,000 figuring on Sheet No. 41 of Annexure-A-3 which includes outstandings upto 31-12-1992 of Rs. 1,36,42,000 + interest calculated from 1-1-1992 to 31-12-1992 on the said Rs. 1,36,42,000 amounting to Rs. 24,55,000. The Assessing Officer found that the photocopies of the hundies located, numbering 34, amounted to Rs. 1,61,72,000 and if two hundies dated 2-9-1985 and 1-10-1985 by M/s. Shah Estate in favour of Smt. Heena Y. Patel of Rs. 50,000 and Rs. 25,000 are excluded, the balance of the hundies aggregate to Rs. 1,60,97,000 which is the amount figuring on Sheet 41 at one stage, i.e., inclusive of the outstandings as on 1-1-1992 and the interest calculated for the period 1-1-1992 to 31-12-1992. The outstandings mentioned in Sheet No. 41 tally amountwise with those included in the 34 hundies (exclusive of the said two hundies issued in favour of Smt. Heena Y. Patel aggregating to Rs. 75,000) which were seized during the search and mentioned at pages 3 to 5 of the assessment order. The outstandings on Sheet 41 aggregate to Rs. 1,36,42,000 which is short of Rs. 1,60,97,000 which is the aggregate of the photocopies of the hundies seized (exclusive of the two in the name of Heena Y. Patel) only by Rs. 24,55,000. The following hundies issued by Meghana Enterprises and J. Chittranjan and Co. which figure in the seized list of the hundies aggregate exactly to the deficiency of Rs. 24,55,000 :

Sr. No.	Sheet No.	Issued by	In favour of	Date of issue	Amount
(1)	3	Meghana Enterprises	Blank	Blank	4,00,000
(2)	4	-do-	-do-	-do-	4,00,000
(3)	5	-do-	-do-	-do-	4,00,000
(4)	6	-do-	-do-	-do-	4,00,000
(5)	7	-do-	-do-	1-1-1993	4,00,000
(6)	16	J. Chittranjan and Co.	-do-	Blank	4,55,000
					24,55,000

The above hundies, for which the date is blank, except in one case, which is 1-1-1993, aggregate to Rs. 24,55,000 which is the interest calculated in Sheet No. 41 for the period 1-1-1992 to 31-12-1992 at 18% on the outstandings as on 1-1-1992 of Rs. 1,36,42,000. We are of the view that the Assessing Officer was justified in coming to the conclusion that the above tally in the outstandings and the interest calculations between the photocopies of the hundies seized and interest calculated on Sheet No. 41 can by no means be called coincidental. It clearly shows that the appellant had advanced hundi loans aggregating to Rs. 1,36,42,000 and he had also received fresh hundies in lieu of interest aggregating to Rs. 24,55,000. So we are of the view that the Assessing Officer was justified in bringing these two amounts to tax.

8(a). Of course, Sheet No. 41 shows interest of Rs. 28,97,000 for the period 1-1-1993 to 31-12-1993, Rs. 34,18,000 for the period 1-1-1994 to 31-12-1994 and Rs. 40,34,000 for the period 1-1-1995 to 31-12-1995. However, no hundies were found in support of the receipt of these interest amounts and so it cannot be said that these amounts were actually received. Thus, entries on Sheet No. 41, to this extent, are not corroborated by the physical presence or seizure of hundies. In the circumstances, we hold that the Assessing Officer was justified in making addition only to the extent of Rs. 1,60,97,000 (1,36,42,000 + 24,55,000).

8(b). We may also mention that out of the above amount of Rs. 1,60,97,000, amounts aggregating to Rs. 1,36,42,000, being the amounts covered by the 32 (34-2) photocopies of the hundies seized have to be brought to tax in the respective years in which the dates of the seizure of hundies fall, under the the head "Other Sources". The interest amount of Rs. 24,55,000 has to be brought to tax under the head "Business", as income from money lending business. As the above hundies aggregating to Rs. 24,55,000 representing interest income do not bear any date, they have to be brought to tax in the year of their seizure.

8(c). The decision of the jurisdictional High Court in the case of Bhojraj Kishanchand (supra), relied upon by the learned DR, supports the stand of the Department to the extent mentioned above. The claim that the amount of Rs. 25 lakhs was advanced in the year 1981 is only convenient and self-serving calculation backwards from Rs. 2,64,46,000 found on Sheet No. 41 of Annexure-A-3. Both the appellant and his son did not come out with the location of the original hundies, even though it is inconceivable that neither of them is aware of their whereabouts. As there is no evidence in support of their explanation that the amount advanced was only Rs. 25 lakhs and that too in the year 1981, we are of the view that it is hit by the said decision of the jurisdictional High Court. We have perused the depositions of Shri A. K. Patel and Shri C. D. Shah at the time of the search and it is evident from their depositions that both of them are men of means and of substance. We may also mention that on the date of the search, Shri D. A. Patel was in London attending a relative's marriage and the son of Shri C. D. Shah was studying in USA in a business school and we are mentioning these facts only to indicate that they are men of substance. As Shri C. D. Shah had acknowledged the debt and had also given fresh hundies to the extent of Rs. 24,55,000 towards interest and the total of these hundies tally with the figure of Rs. 24.55 lakhs mentioned in Sheet No. 41, we are of the view that it is a reasonable conclusion to hold that there was a constructive receipt of interest to this extent. It is only because the date is left blank on these hundies we are holding that it should be assessed in the year of assessment relevant for the year of seizure. It may be clarified that the seized hundies aggregating to Rs. 1,60,97,000 were outside the books of account of the appellant and so the method of accounting whether cash or mercantile, has no bearing on the discussion of this issue.

9. We, however, have to hold that the other amounts of interest reflected on Sheet No. 41 of Rs. 28,97,000, Rs. 34,18,000 and Rs. 40,34,000 cannot be brought to tax in view of the contention that these amounts were not received and the relations with the debtor were strained. In view of the fact that there is no other corroborative evidence in support of the receipt of these amounts and there is nothing to contradict the claim of the appellant that the relations are strained and the recovery is in doubt, we have hold that these amounts are not includible in the assessment. The same holds good for the addition of Rs. 25,78,485 towards the interest for the period 1-1-1996 to 15-7-1996 on Rs. 2,66,46,000. These amounts are deleted. So the addition of Rs. 2,90,24,485 made by the Assessing Officer (2,64,46,000 + 25,78,485) is reduced to Rs. 1,60,97,000 being the outstandings of hundi loans as on 1-1-1992 and the interest for the period 1-1-1992 to 31-12-1992 as reflected in Sheet No. 41.

10. Before we close this issue, we may refer to one of the arguments advanced before us that no addition can be based upon photocopies of the hundies, as they are not original hundies. We have to reject this contention because the photocopies themselves are evidence of the advance of the loans. There cannot be photocopies without the originals. It is for the appellant to have produced the originals, which he chose not to. Further, in the present case, the loans evidenced by the photocopies of the hundies are corroborated by the statements of both the creditor, i.e., the appellant, and the debtor, i.e., Shri C. D. Shah and Sheet No. 41 discussed above. So we reject this contention.

11. The next objection is to the addition of Rs. 20,32,241 as per the following details :-

Interest as per Sheet 1 of Annexure-A-2 of Panchanama dated 15/16-7-1996 for the period 1-4-1986 to 1-3-1996	Rs. 18,75,284
Interest on Rs. 23,25,284 for the period 1-3-1996 to 15-7-1996 for the abovementioned sheet of Annexure-A-2.	Rs. 1,56,957
Total	Rs. 20,32,241

1.2 These additions are based on a seized document which reads as follows :-

"R.S.
(2 + 1 + 1.5)
4,50,000
Int. recd. upto 1-4-1986
1-4-1986 to 31-3-1987	4,50,000
Int. @ 18%	81,000
	5,31,000
	95,580
1-4-1987 to 31-3-1988	6,26,580
	1,12,784
1-4-1988 to 31-3-1989	7,39,364
1-4-1989 to 31-3-1990
	1,33,086
1-4-1990 to 31-3-1991	8,72,450
	1,57,040
1-4-1991 to 31-3-1992	10,29,490
	1,85,308
1-4-1992 to 31-3-1993	12,14,798
	2,18,663
1-4-1993 to 31-3-1994	14,33,461
	2,58,023
1-4-1994 to 31-3-1995	16,91,484
	3,04,467
1-4-1995 to 31-3-1996	19,95,951
	3,29,332
	23,25,284
Balance as on 1-3-1996	23,25,284"

The Assessing Officer has excluded the principal of Rs. 4,50,000 figuring in the above statement and has added the balance of interest of Rs. 18,75,284 as the income of the appellant. He has further worked out the interest on the amount of Rs. 23,25,284, i.e., interest Rs. 18,75,284 + Principal of Rs. 4,50,000 for the period 1-3-1996 to 15-7-1996, i.e., the date of search, and included this amount also as the income of the appellant. The Assessing Officer mentioned that the word "R.S." figuring in the above sheet shows that the paper belongs to the appellant, because according to him "R.S." stands for "Radha Swamy", a cult said to be followed by the appellant and his family. He accordingly rejected the contention of the appellant that the paper was not in his hand and that he had nothing to do with the calculations made on the paper and it must have been left by some guest.

13. We have to delete the impugned additions aggregating to Rs. 20,32,241. We do not find any evidence connecting the appellant to this seized paper. Simply because a sheet of paper is found during the search at the premises of an assessee, he cannot be saddled with a tax liability unless it can conceivably be related to the assessee in some reasonable manner. The word "R.S." occurring on the paper is, to our mind, too tenuous to connect the appellant with the amount of Rs. 20,32,241 figuring in the paper. Accordingly, we delete the impugned additions of Rs. 18,75,284 and Rs. 1,56,957.

14. The next objection is to the two additions made by the Assessing Officer as per the following details :-

Unexplained investment in undated original hundies	Rs. 2,00,000
Interest on unnamed original hundies of prior to the Block period (for the period 1-4-1986 to 15-7-1996)	Rs. 24,75,072
Total	Rs. 26,75,072

15. The search party located certain original hundies aggregating to Rs. 10,50,000 apart from the photocopies of the hundies aggregating to Rs. 1,61,72,000 discussed hereinbefore. The details of these hundies are given at page 6 of the assessment order and they are reproduced hereinbelow :-

Sr. No.	Sheet No.	Issued by	In favour of	Date	Amount
1	1	J. Chittranjan and Co.	J.B.P.	1-10-1986	4,00,000
				1-1-1987
				1-4-1987
				1-7-1987
2	2	Auto Traders India	Blank	1-7-1981	1,00,000
3	3	-do-	-do-	11-9-1981	1,00,000
4	4		-do-	11-6-1983	1,00,000
5	5	-do-	-do-	11-6-1983	1,00,000
6	6	Blank	-do-	17-11-1984	25,000
7	7	-do-	-do-	17-11-1984	25,000
8	8	Bhupendra Motors	-do-	Blank	25,000
9	9	-do-	-do-	-do-	25,000
10	10	-do-	-do-	-do-	25,000
11	11	-do-	-do-	-do-	25,000
12	12	-do-	-do-	-do-	25,000
13	13	-do-	-do-	-do-	25,000
14	14	-do-	-do-	-do-	25,000
					10,50,000

The Assessing Officer excluded the principal amount covered by the hundies at (1) to (7) above but included the undated issued by Bhupendra Motors as the undisclosed income of the appellant. He has omitted the hundies mentioned at (2) to (7) above on the ground that the dates of these hundies fell beyond the block period. He appears to have omitted the hundies of Rs. 4,00,000 issued by J. Chittranjan and Co. mentioned at (1) above on the ground that it did not belong to the appellant but belonged to Shri J. B. Patel (JBP) who is separately assessed to tax with the Department, as mentioned by the Assessing Officer in para I.B(iii) at page 14 of his order and Shri J. B. Patel accepted the loan standing in his name. That is how he included only the amount of Rs. 2,00,000 for which an objection is taken in the ground taken before us. He included the interest on the hundies worked out by him at Rs. 24,75,072 for the period 1-4-1986 to 15-7-1996. The working of this interest, it appears, is not available in the order.

16. reliance is placed upon the decision appellant pleaded that neither M/s. Auto Traders India nor M/s. Bhupendra Motors are now traceable and that no interest had been received from it. In other words, the argument made out is that both the principal and the interest are at grave risk so far as recovery is concerned and so the impugned additions should be deleted.

17. We find that there is no evidence in the search material or elsewhere about the receipt of interest in respect of any of the above loans. Accordingly, we have to hold that the interest income has not accrued. We do not see, however, why the addition of Rs. 2,00,000, being the undated hundies in the name of M/s. Bhupendra Motors should also be deleted. As they are undated, they are to be considered as the income of the year in which the search was conducted and they were located. The contention of the appellant that M/s. Bhupendra Motors is not traceable is not acceptable to us inasmuch as no evidence to that effect has been produced before us. The appellant would not have advanced a loan of Rs. 2,00,000 without even knowing the whereabouts of the party. No material is advanced before us to dislodge the proof of the loan evidenced by the document of the original hundi located during the search. In this view of the matter, we sustain the addition of Rs. 2.00.000 made by the Assessing Officer, being the undated hundi issued by M/s. Bhupendra Motors, while we delete the addition of Rs. 24,75,072, being the interest worked out by the Assessing Officer on his own without any corroborative evidence of the receipt or even accrual of the interest.

18. The next objection is to the addition of Rs. 43,095 on the ground of unaccounted investment in certain silver articles. During the search, silver articles weighing 102 kgs. were found. Out of this, articles weighing 50.372 kgs. had been disclosed in the wealth-tax returns of the family. The appellant offered the value of 40 kgs. of articles as income for the block period and explained that about 11 kgs. of silver articles were received on the occasion of the 80th birthday of the appellant and on the marriage of his grandson. The Assessing Officer accepted the gifts only to the extent of 5 kgs. but added the difference of 6.63 kgs., worked out at Rs. 43,095, as the unexplained investment made in the acquisition of the silver articles made by the the appellant.

19. It is pleaded before us that considering the status of the appellant, the gift of 11 kgs. at the time of the 80th birthday of the appellant and the marriage of his grandson deserves to be accepted. We agree with this contention. We delete the addition of Rs. 43,095.

20. The next objection is to the addition of Rs. 15,000 as unaccounted foreign currencies acquired by the appellant. It is pleaded before us that the assessee was affluent at one time and was frequently going abroad and these foreign currencies were preserved as collector's items. The details of the foreign currencies in question have been filed before us. Considering the smallness of the amount, we accept the contentions in this regard. The addition is deleted.

21. Resultantly, we uphold additions to the extent of Rs. 1,62,97,000, per following details :-

(1)	Hundi loans as reflected in Sheet No. 41	Rs. 1,36,42,000
(2)	Interest thereon, as reflected in Sheet No. 41, for the period 1-1-1992 to 31-12-1992	Rs. 24,55,000
(3)	Original hundies issued by M/s. Bhupendra Motors	Rs. 2,00,000
	Total	Rs. 1,62,97,000

22. As clarified elsewhere, the hundi loans have to be assessed under the head "Other sources" and the interest of Rs. 24,55,000 under the head "Business".

23. Subject to the above, the appeal is partly allowed.

 

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