Vildirect: IncomeTax-caselaws-2005-VIL-365-ITAT-

2005-VIL-365-ITAT-

Equivalent Citation: TTJ 101, 682,

Income Tax Appellate Tribunal BOMBAY

Date: 26.08.2005

JAGMOHAN SINGH ARORA AND OTHERS.

DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER.

BENCH

Member(s) : SHAILENDER K. YADAV., V. K. GUPTA.

JUDGMENT

All these appeals have been filed by the different assessees on various grounds which are being dealt as under:

1.1 Action under s. 132 of the IT Act, 1961, was conducted in the business as well as the residential premises of the appellant group consisting of the following persons on 10th Dec., 1998 during which certain documents, books of account and other valuables including cash and jewellery were found and seized.

Shri Daya Singh Arora-Head of the family.

Smt. Varyam Kaur Arora-Wife of Shri Daya Singh Arora.

Shri Jagmohan Singh Arora-Son of Shri Daya Singh Arora.

Smt. Neeta J. Arora-Wife of Shri Jagmohan Singh Arora.

Shri Kuljeet Singh Arora-Son of Shri Daya Singh Arora.

Smt. Poonam Arora-Wife of Shri Kuljeet Singh Arora.

M/s Arora Construction & Developers-Partnership firm.

M/s Modern Dairy & Ice Plant-Partnership firm.

M/s Modern Cream Dairy Ind. (P) Ltd.-Private limited company

1.2 Statement under s. 132(4) of the main person of group-assessee, Shri Jagmohan Singh Arora was recorded in the course of such search proceedings. The said interrogation began at 10 p.m. and continued till 5 a.m., the next morning. During the course of such interrogation the appellant was questioned about receipt of on-money on account of construction project at Bhayandar and also unaccounted investment in the land purchased at Bhayandar by the assessee-group. On being denied the allegation of receipt of such on-money and also of unaccounted investment, the Department presented before the assessee certain pages of a seized document identified as A-6, seized from the residence of one Shri J.P. Achnani and his statement under s. 132(4) wherein he had alleged the same to be belonging to the assessee-group containing recordings regarding receipts and payments (both accounted and unaccounted) relating to construction project and also purchase of land at Bhayandar for the proposed housing project called "Satguru Shelters". According to the statement given by Shri J.P. Achnani, the said documents were found in his custody because he was in-charge of all the activities of the project. The said Shri J.P. Achnani was also presented before Shri Jagmohan Singh Arora, who was then asked to cross-examine Shri Achnani. Shri Jagmohan Singh Arora refused to do so and agreed to confirm the statement of the said J.P. Achnani. He admitted unaccounted income to the tune of Rs. 1.75 crores.

1.3 Subsequently, block return was filed by Shri Jagmohan Singh Arora on 7th July, 1999 and also the other individual assessees, declaring "nil" income each. The statement under s. 132(4) of the IT Act, 1961, wherein admission of unaccounted investment in the land at Bhayandar had been made was also retracted by him subsequently. The said retraction was made on the following grounds:

(i) The interrogation started at 10 p.m., and was concluded at 5 a.m. on the next morning.

(ii) During the said interrogation, Shri Jagmohan Singh Arora was continuously threatened of penal consequences.

(iii) He was constantly misinformed about the happenings at other premises, which were being searched simultaneously.

(iv) He was extremely tired and mentally exhausted by the continuous search proceedings and long interrogation.

(v) Furthermore, no opportunity to go through the seized materials and books was made available to Shri Jagmohan Singh Arora. Especially, the materials alleged to have been seized from the premises of Shri J.P. Achnani were merely shown to him without affording him proper opportunity to study them, understand the meaning of the contents thereof. to compare them with the own books of account and records of the assessee-group and thus to be able mentally to refute the contents of such materials.

(vii) However, just to buy peace and to put an end to the search proceedings, Shri Jagmohan Singh Arora agreed to endorse the statement of Shri J.P. Achnani regarding the materials seized from the residence of Shri Achnani.

1.4 The said retraction of the statement by Shri Jagmohan Singh Arora was ignored by the Department on the ground that the said retraction was merely an afterthought to cover the already exposed mechanism of tax evasion. The incomes of the different individual members of the assessee-group were assessed at Rs. 40,75,490 for Shri Daya Singh Arora; Rs. 2,32,384 for Smt. Varyam Kaur Arora, Rs. 1,09,72,993 for Shri Jagmohan Singh Arora, Rs. 6,97,152 for Smt. Neeta Arora; Rs. 42,81,034 for Shri Kuljeet Singh Arora; Rs. 37,12,402 for Smt. Poonam K. Arora and Rs. 52,68,146 for M/s Arora Construction & Developers. In the said overall additions were included additions on account of unrecorded investments in Bhayandar land to the respective extent of Rs. 33,57,950; Rs. 2.32,384; Rs. 1,01,06,380; Rs. 6,97,152; Rs. 38,34,336, Rs. 37,16.402 and Rs. 52,68,146. In making the additions on proportionate basis in the hands of the different members of the appellant group in respect of Bhayandar land, on the basis of the so-called confession of Shri Jagmohan Singh Arora, the Department relied upon the following pronouncements

(i) V. Kunhambu & Sons vs. CIT (1996) 131 CTR (Ker) 396 : (1996) 219 ITR 235 (Ker)

(ii) Surjeet Singh Chabra vs. Union of India AIR 1997 SC 2660

(iii) Param Anand Builders (P) Ltd. vs. ITO (1996) 56 TTJ (Mum) 21 : (1996) 59 ITD 29 (Mum) The additions in the assessment order were confirmed by the CIT(A).

2. During the course of the hearing of the further appeals preferred by the assessee-group, in the matter of the first issue i.e. additions in respect of unaccounted investments in Bhayandar land, the learned Authorised Representative of the assessee-group argued as follows:

2.1 The addition was made solely on the basis of the statement of Shri J.P. Achnani relating to the recordings of so-called undisclosed income of the assessee-group in the materials seized from his residence allegedly corroborated by Shri Jagmohan Singh Arora. The learned Authorised Representative of the assessee has pleaded that the statement given by Shri Jagmohan Singh Arora was not a voluntary one but an extracted one inasmuch as pressure tactics were applied by the Department to compel him to agree to confirm the statement of said J.P. Achnani. He relied on the following judgments and Departmental circular to argue that in the circumstances of the case, the statement of Shri Jagmohan Singh Arora made on the date of the search under difficult circumstances, does not have much evidentiary value.

(a) Asstt. CIT vs. Mrs. Sushiladevi S. Agarwal (1994) 49 TTJ (Ahd) 663 : (1994) 50 ITD 524 (Ahd) at 526 holding.

"All that is stated by any deponent on the day of the search should not be taken as truth, the whole truth and nothing but truth. Such statements undoubtedly have evidentiary value and credibility in law, but the same should be viewed with great caution, particularly when, the same is denuded, varied or retracted or established by the defendant to have been obtained or given under mental stress, coercion, undue influence or due to any other abnormal condition and circumstances when such statement was given."

(b) CIT vs. Shri Ramdas Motor Transport (2000) 163 CTR (AP) 403 : (1999) 238 ITR 177 (AP) at 183

"It was open to the assessee at the stage of assessment to establish that the surrender made by him at the time of search was under compulsion and not with free mind or that the addition is not warranted on the basis of available material; .......Addition should be considered on merits rather on the basis of the fact that the amount was surrendered by the assessee."

(d) The Circular F. No. 286/2/2003-IT (Inv. II) dt. 10th March, 2003 issued by the CBDT also instructs the officers of the Department not to place much reliance on uncorroborated depositions taken at the time of the search. Copy of the said circular is reproduced below:

F. No. 286/2/2003-IT (Inv. II)

"Government of India Ministry of Finance & Company Affairs

Department of Revenue

Central Board of Direct Taxes

Room No. 254, North Block,

New Delhi, the 10th March, 2003.

All Chief CIT (Cadre Controlling) &

All Directors General of IT (Inv.)

Sir,

Subject: Confession of additional income during the course of search and seizure and survey operation-regarding. Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search and seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, such confessions during the course of search and seizure and survey operation do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the IT Department. Similarly, while recording statement during the course of search and seizure and survey operations, no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely Further, in respect of pending assessment proceedings also, AG's should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders.

Yours faithfully,

(S.K. Mahapatra)

Under Secretary (Inv. IT)"

The learned Authorised Representative on behalf of the assessee had argued that in view of the above direction by the CBDT itself, it can safely be said that not much credence need be placed merely on the so-called confessional statements of the searched parties, which are not supported by any concrete evidence or material. Further, the statement has lost all its value because neither the assessee nor the Department has gone by the above statement. The Department has proceeded to make an addition of more than Rs. 2.72 crores on account of this land, which is much more than the amount of Rs. 1.75 crores as confessed by the appellant whereas the assessee-group denies any such unaccounted investment at all.

2.2 Secondly, nothing was found in the premises of the assessee-group to suggest unaccounted investment in the land at Bhayandar. The papers relied upon were found from the custody of a third person. The statement of such third person was the only basis of such addition. But this statement which is the main evidence of the Department was recorded not in the presence of any of the members of the assessee-group. It was recorded at the residence of the third party in the absence of any member of the assessee-group. The learned Authorised Representative on behalf of the assessee contended that the probability of such statement being extracted under compelling circumstances by the Department is very strong. He objected how can a statement of a third party on certain documents found in his custody be used against the appellant group specially so when such statement was recorded in the absence of the assessee-group. He argued that such action of the Department is totally in violation of the principles of natural justice and is arbitrary. The learned Authorised Representative on behalf of the assessee had further argued that the above view is further strengthened by the fact that the papers on the basis of which the said additions were being proposed were simply loose sheets of paper and not a part of books of account of anybody.

2.3 The learned Authorised Representative on behalf of the assessee had relied on several judicial pronouncements in support of the principle that no addition can be made on the basis of entries made by a third party in his books of account or any loose sheet from the custody of a third party. The above view is supported by the Bombay High Court in the case of Asstt. CIT vs. Lata Mangeshkar (1974) 97 ITR 696 (Bom), wherein it has been held that entries in the accounts of third party regarding payment to the assessee were not sufficient as there was no proof that the same were genuine. The same view was endorsed by the Hon'ble Tribunal, Delhi Bench in the case of Amarjit Singh Bakshi (HUF) vs. Asstt. CIT (2003) 81 TTJ (Del)(TM) 169 : (2003) 263 ITR 75 (Del)(TM)(AT). He also invited our attention to the decision taken by the Hon'ble Tribunal, Mumbai Bench in the case of S.P. Goyal vs. Dy. ClT (2002) 77 TTJ (Mum)(TM) 1 : (2004) 269 ITR 59 (Bom)(AT), wherein it has been held that no addition can be made under such situation. Accordingly, the learned Authorised. Representative of the assessee pointed out that similar views have been held in the cases of Prarthana Constructions (P) Ltd. vs. Dy. CIT (2001) 70 TTJ (Ahd) 122, CBI vs. V.C. Shukla & Ors. 3 SCC 410, Chuharmal vs. CIT (1988) 70 CTR (SC) 88 and in the case of Niranjan Kumar Agarwal vs. Asstt. CIT in ITA No. 658/C/1998 (Tribunal, Kolkata Bench).

2.4 The learned Authorised Representative on behalf of the assessee furthermore argued that the principle of natural justice has also been violated inasmuch as no proper opportunity to cross-examine the said third party was made available to the assessee. The only opportunity provided was a farce inasmuch as the same was provided on the date of search, in the middle of the night and in the absence of complete set of seized material on which addition was proposed to be made. Furthermore, no opportunity to examine the regular books was made available to the assessee. He invited our attention to the Third Member decision taken by the Hon'ble Tribunal, Kolkata Bench in the case of Santa Devi Kajana vs. ITO (2004) 86 TTJ (Kol)(TM) 1090 : (2004) 89 ITD 109 (Kol)(TM), wherein it has been held that the Revenue cannot use any material as an evidence until and unless proper opportunity to cross-examine the party with whom the materials were lying, was made available to the assessee. In the instant case, he argued that the same was denied and hence the statement of Shri J.P. Achnani cannot be used as an evidence as no proper opportunity to cross-examine him was made available to the assessee.

2.5 The learned Authorised Representative on behalf of the assessee had further argued that as far as presenting the said J.P. Achnani on the date of search is concerned, the same was also a farce and not at all meaningful. The search party, in the middle of the night, after a grilling session of interrogation presented a person for cross-examination. Shri Jagrnohan Singh Arora was obviously not in a proper state of mind, to be able to comprehend the matter in its entirety. He was not in possession of the materials on the basis of which addition was proposed to be made. The same was not found from his custody. They were not written by him or any of his family members. His regular books were not available with him. That besides, the search had begun in the early . morning hours and continued throughout the whole night. Search was simultaneously conducted at other business premises. He was constantly misinformed about the happenings at such places. He was being continually interrogated and after more than 12-14 stressful hours, he was presented with materials seized from a third party, his statement on the same and him in person. He was in no state of mind to fully understand what was happening not to speak of being able to conduct a meaningful cross-examination. Hence the only opportunity provided by the Department was as good as not providing an opportunity to cross-examine thereby violating the principles of natural justice.

2.6 Further it was argued that the assessee went on arguing that the assessee must be made available. with a complete set of seized materials and statements proposed to be used against him. Such materials must be made available in advance so as to enable the assessee to study them and compare the same visa-vis his regular books. All these are the preconditions of a proper opportunity of cross-examination which were not at all observed in the case of the assessee-group and, hence, he can be said to have been deprived of the opportunity to cross-examine thereby violating the principles of natural justice.

2.7 Furthermore, he argued that the addition made by the Department is legally incorrect. Undisclosed income has to be computed in accordance with the manner laid down in s. 158BB of the IT Act, 1961, and as per the definition of "undisclosed income" as provided therein. The different judicial pronouncements have held that unaccounted income has to be computed on the basis of materials found in the course of search.

2.8 The learned Authorised Representative of the assessee summed up his arguments by pointing out that a perusal of the assessment order would show that nothing was found to show or suggest that the assessee or any member of the group had made any unaccounted investment for acquisition of land at Bhayandar. Furthermore, nothing in the materials seized from the appellant group supported such view. Even the learned AO has not mentioned anything to this effect in his assessment order. A perusal of the assessment order would also show that the said addition was made on the basis of statement of a third party in regard to the documents not written by any member of the assessee-group and found in the custody of the said third person. Hence, the said materials cannot be linked up with the search in case of the assessee-group. He further argued that even if it be contended that the search in the premises of Shri J.P. Achnani was a valid independent search, no proceeding under s. 158BD was initiated in the case of the appellant group to link up that search with the appellant group. Hence, these materials found in the premises of Shri J.P. Achnani cannot be considered as "seized materials" relating to the assessee-group and, thus, no addition can legally be made in the hands of the appellant group on the basis of such materials. He further argued that the additions on the basis of the said materials and also the statement of Shri Achnani cannot be made inasmuch as no effort whatsoever was made by the AO, to conduct independent enquiries from the persons whose names appear in the so-called seized documents. According to the learned Authorised Representative on behalf of the assessee such uncorroborated materials, even if they had been seized from the premises of the assessee, would not have had any evidentiary value.

2.9 Without prejudice to the above, the learned Authorised Representative- on behalf of the assessee further pointed out that the seized document A-6 in its entirety, on the basis of which additions have been made was not made available to the assessee-group till after the appeals were disposed of by the CIT(A). Since the complete set of documents was not available with the assessee-group they were not in a position to examine the same. On receipt of the said documents and its complete examination, it was found that only the part of it which is beneficial to the Revenue had been utilised by the Department and papers which are favourable to the appellant group had totally been ignored. In this regard our attention was invited to p. 412 of the paper book Part II of Jagmohan Singh Arora and Kuljeet Singh Arora being p. 119 of seized document A-6 which records receipt of substantial amounts. The same is stated to be money received against booking advance by the appellant group. This is established from the fact that the page contains cash as well as cheque receipts and the cheque receipts are shown as booking advances in the books of M/s Arora Constructers and Developers. Hence the cash receipt is also the same. In absence of any date of the cash receipts, the same principle followed by the Department in regard to addition, i.e., in proportion to amounts shown in regular books has to be resorted to. The same would show that the receipts are before payments and hence if at all any addition is called for, it has to be done after taking the same into consideration. Moreover, the assessee is not sure as to what other documents in this connection were seized from Shri Achnani and whether there were more sources for meeting cash payments. The learned Authorised Representative on behalf of the assessee vehemently argued in this connection that even one paper found from Shri Achnani's place goes to show advances having been received in cash prior to making payments of on-money towards acquisition of land he argued that even according to the version of Shri Achnani it was he alone who was handling the entire affairs relating to receipts (by way of advances) and payments (towards on-money on land) in respect of the unaccounted portion specially. Nobody belonging to the Arora family as such had much knowledge about the said matters. The learned Authorised Representative of the assessee argued that if only one paper with Shri Achnani showed such considerable amount of receipt of money which would certainly explain the unaccounted investment to certain extent (but which aspect had completely been neglected by the AO), had it been possible to lay hands on all the relevant papers containing the so-called on-money transactions fully, perhaps the entire unexplained investment in land could have been explained by way of receipt of advances. The said matter has been taken up by the assessee before the Tribunal by way of additional grounds. It was further argued that there is no scope for adding the advance amounts as income since till the time the construction is over, the flats are handed over to the parties and the advance amounts are appropriated to the revenue accounts, the advance amounts would continue to remain so. In short, he pointed out that the income had not crystallised as per the seized documents. He stated that such booking advances cannot be considered to be income inasmuch as the same is nothing but advances duly shown in the "liabilities" side of balance sheet. The same cannot be considered as an income. He drew our attention to the decision of the Tribunal, Calcutta Bench in the case of South Calcutta Promoters (P) Ltd. vs. ITO, wherein the above view has been upheld.

2.10 The learned Authorised Representative on behalf of the assessee had further argued that the assessments made by the Department are also erroneous inasmuch as each assessee belonging to the group has been considered independently of the others leading to multiple taxation. It belongs to "Modern Group" which is mainly engaged in dairy business. Two primary business concerns of the said group are M/s Modern Cream Dairy (P) Ltd. (a closely-held company) and M/s Modern Dairy & Ice Plant (a partnership concern) for which declarations of unaccounted income of Rs. 1 lakh and Rs. 55 lakhs have been made. The fact that unaccounted money, if any, in the hands of the assessee has come from such dairy business has been altogether ignored. He pointed out:

(i) No effort whatsoever was made to relate the alleged unexplained investment with the receipts in the hands of the said concerns ignoring the fact that there was no other business of the assessee.

(ii) Our attention has also been invited to the fact that the AO has made an addition of Rs. 68,65,134 on account of alleged suppressed sale in the hands of two primary concerns of the group mentioned above. However, no effort was made to set off the same against the alleged unexplained investment.

(iii) In a nutshell, income was assessed at two points i.e., accrual and application (investment), i.e., both asset and income were taxed ignoring the fact that the asset has been financed out of the said income and it is only the excess of the investment over income, if any, which needs to be taxed.

(iv) Failure on the part of the AO, to telescope the receipt against the payment and refusal to consider the appellant as a part of the group as a whole has led to multiple taxation and high-pitched assessment orders which are fundamentally erroneous and hence needs to be re-examined.

3. On the other hand, the Departmental Representative strongly supported the orders of the lower authorities. Reliance has also been placed by him on the judgments of (i) Tribunal, Mumbai Bench 'A' in the case of Video Master vs. Jt. CIT (2003) 78 TTJ (Mum) 264 : (2003) 83 ITD 102 (Mum), (ii) Tribunal. Mumbai Bench 'A' in the case of Ramesh T. Salve vs. Asstt. CIT (2001) 71 TTJ (Mum) 111, (iii) Kerala High Court in the case of V. Kunhambu & Sons vs. CIT (1996) 131 CTR (Ker) 396 : (1996) 219 ITR 235 (Ker), (iv) Tribunal Mumbai Bench 'A' in the case of Pranav Construction Co., (v) Allahabad High Court in the case of Dr. S.C. Gupta vs. CIT (2001) 170 CTR (All) 421 : (2001) 248 ITR 782 (All), (vi) Tribunal, Pune Bench in the case of Hotel Kiran vs. Asstt. CIT (2002) 77 TTJ (Pune) 87 : (2002) 82 ITD 453 (Pune) and (vii) Tribunal, Mumbai Bench 'E' in the case of Param Anand Builders (P) Ltd. In the background of the above cases the learned Departmental Representative submitted that the disclosures made and confessional statements given at the time of the search can be utilised as proper evidences and that the addition can be made on the basis of recordings therein and that such statements cannot be subsequently retracted.

4. After going through the orders of the authorities below, rival submissions of both the sides and material on record, we are of the opinion that the question of whether any reliance and if so, how much reliance can be placed on the statements made during search, would depend on the facts of each case. We find enough force in the arguments on behalf of the learned Authorised Representative of the assessee as supported by the judgments cited by him and also corroborated by supporting materials and evidences, no addition can be made simply on the basis of such uncorroborated statement/disclosure. On the other hand, we find that the judgments as cited by the Departmental Representative are not applicable to the cases of the appellant group inasmuch as in each of the said cases, the respecting AO conducted independent enquiries to follow up the confessional statements made during the searches and found out corroborations of such statements in some way or other. In the instant cases, however, the present AO did not conduct any enquiry from any of the parties whose names appear in the seized documents and simply based his findings on the initial statements of Shri Jagmohan Singh Arora given at the time of the search and also the statement of Shri Achnani. In that matter again, the principles of natural justice were clearly violated inasmuch as no due opportunity was afforded to Shri Arora for cross-examination and that the opportunity actually provided was just a farce as has been stated by the learned Authorised Representative of the assessee and found to be correct by us. There was again no statement given by Shri J.S. Arora regarding on-money. On the contrary he denied the same. The said statement (about on-money payment) was given by a third party. We also agree with the contention on behalf of the assessee-group that the assessee after denying such cash payments several times ultimately agreed to the statement of the abovesaid third party under the compelling circumstances as stated by the learned Authorised Representative of the assessee. The statement cannot, therefore, be considered to be voluntary. In the above background, where the Department has no other evidence to establish the concealment of income except the papers seized from a third party, his statement on the same, (which was subsequently retracted) and the assessee's acceptance under compelling circumstances of the same which was also subsequently retracted. The additions have not been duly corroborated by the Revenue. We are of the opinion that the Department has not been able to substantiate its finding with cogent reasoning. So the same cannot be upheld.

4.1 The alternative arguments put forward by the learned Authorised Representative of the assessee are also quite forceful. It has rightly been pointed out that so far as the question of payment of on-moneys towards purchase of land is concerned, such unaccounted investment, if any, could have been made by the group only out of the unaccounted source generated in the hands of the two concerns belonging to the group engaged in dairy business. We find enough force in the arguments on behalf of the appellant group that here the AO has tried to tax both the earning of unaccounted money in the hands of the dairy farms and also application thereof in the hands of the firm engaged in construction and also the individual members of the group. The AO has not at all considered the question of telescoping the unaccounted funds generated in the hands of those two concerns with the possible application thereof in the construction business.

4.2 Ultimately, taking into consideration all the above aspects, we hold that the additions as made by the AO in this regard in the hands of the different members of the assessee-group including the partnership firm,. are untenable. We, therefore, delete them.

5. The next ground relates to additions on account of unexplained investment in jewellery in the hands of Shri Daya Singh Arora, Shri J.S. Arora and Shri Kuldeep Singh Arora of the amounts of Rs. 3,62,475, Rs. 3,41,613 and Rs. 2,68,698 respectively. The facts in this regard are that during the course of search, jewelleries of certain values were found. In absence of wealth-tax returns, the AO, after allowing the benefit as per CBDT Circular No. 1916, dt. 11th May, 1994, taxed the balance.

5.1 In this regard, the learned Authorised Representative of the assessee submitted that in the case of M/s Modern Dairy & Ice Plant, disclosure of a total amount of Rs. 55,00,000 was made out of which Rs. 25,93,595 was offered not towards any specific issue but just to cover any discrepancy (which may arise later on) and that the AO did not adjust the amounts of the additions against the figure offered on the ground that both were different entities ignoring the fact that they belonged to a common group and the only source of income is the dairy business. The learned Authorised Representative of the assessee submitted that by adopting this attitude, the AO had made double taxation of one amount both at the point of receipt and investment which is wrong and should be deleted. In support of the proposition that telescoping should be done in such cases, the learned Authorised Representative of the assessee relied on the judgment in the case of B & Brothers Engineering Works vs. Dy. CIT (2003) 78 TTJ (Ahd)(TM) 876 : (2003) 84 IT'D 243 (Ahd)(TM).

5.2 We find enough force in the argument of the learned Authorised Representative of the assessee, we direct that when the disclosed amount of Rs. 25,93,595 has been added in the hands of M/s Modern Dairy & Ice Plant on the basis of disclosure simply and without any connection with any seized material as such and when no other utilisation of this amount has been found out by the AO, it will be fair to allow adjustment of the amounts added back on account of unexplained jewellery in the hands of the individual members of the group against the said undisclosed income. We, therefore, direct that separate additions made in this regard be deleted.

6. The next issue relates to additions of Rs. 3,55,065 and Rs. 1,78,000 in the hands of Shri Daya Singh Arora and Shri Kuldeep S. Arora respectively on account of unexplained cash. Similar arguments as in the case of unexplained jewellery have been made. We also find that there is enough scope for telescoping these amounts also against the disclosure made in the hands of M/s Modern Dairy & Ice Plant even after adjusting the amounts of unexplained jewelleries. Ultimately, we delete these additions.

7. The next ground in these appeals relates to the addition of Rs. 4,75,000 in the hands of Shri Jagmohan Singh Arora towards alleged unexplained investment in M/s Hindustan Marbles. During the course of search proceedings, one paper purported to be an MoU between Mrs. Mangla Chopra and Mr. Jagmohan Singh Arora for assignment of all her right, title and interest including the benefit of agreement dt. 9th April, 1997 for a sum of Rs. 12,00,000, was seized. As per this agreement of July, 1998, a sum of Rs. 6,00,000 is payable on or before the execution of this understanding. The AO, stated that though the agreement was unsigned yet since the business activity has already started, at least part payment could hardly be doubted. The AO relied on the statement of Shri Jagmohan Singh Arora recorded on 11th March, 1999, wherein he gave an approximate figure of Rs. 4,75,000 regarding the investment.

7.1 The learned Authorised Representative of the assessee submitted that the figure given is just an approximation and further no evidence in this regard was found in the course of search and that the MoU in itself was unsigned. He also pointed out that moreover in the case of M/s Modern Dairy & Ice Plant, Rs. 25,93,595 was offered to cover any discrepancy. The learned AO, did not adjust the said amount against the figure offered on the ground that both were different entities ignoring the fact that they belonged to a common group and the only source of income is the dairy group.

7.2 The issue is similar to those relating to unexplained cash and unexplained jewellery. We find that as the AO has not allowed any adjustment against the disclosure of Rs. 25,93,595 made by M/s Modern Dairy & Ice Plant, all the amounts considered as undisclosed income on account of unexplained cash, unexplained jewelleries and also the unexplained investment as considered herein, would fit in the overall amount of disclosure made by M/s Modern Dairy & Ice Plant. We are, therefore, of the opinion that, there is no scope for making this further addition. We, therefore, delete the same.

8. Now, we deal with the appeal of M/s Dairy & Ice Plant and M/s Modern Cream Dairy Ind. Ltd. In both the appeals the assessees have raised various grounds, which are being dealt with as follows.

9. As we have discussed above that action under s. 132 was conducted in the business as well as the residential premises of the assessee-group consisting of the two assessees engaged in dairy business, a number of individuals and another partnership firm engaged in construction business, on 10th Dec., 1998, during which certain documents, books of account and other valuables were found and seized. During the course of the search, the two assessees offered the amounts of Rs. 55,00,000 (M/s Modern Dairy & Ice Plant) and Rs. 1,00,000 [M/s Modern Cream Dairy Industries (P) Ltd.] under s. 132(4) of the IT Act, 1961.

10. During the course of search, certain register identified as A-39, A-43 and A-48 were seized. As per the explanation provided by the assessee-group, the same contained production details of two concerns, viz., M/s Modern Dairy & Ice Plant and M/s Modern Cream Dairy Industries (P) Ltd. Since the two concerns were engaged in similar business, it was urged on behalf of the assessee that the quantity of goods recorded in the said registers should be compared with total quantity in the books of M/s Modem Dairy & Ice Plant and M/s Modem Cream Dairy Industries (P) Ltd., and both put together.

10.1 The quantitative details of both the concerns were presented before the AO. From the details furnished it was obvious that the production and sales of both the concerns put together was in excess of what was recorded in the seized registers. Hence according to the assessee, there was no suppression of sale.

10.2 The asses sees further submitted before the AO, that the sales value of the products in the said registers tallied with the sales value as per the books of account. The assessee presented comparative charts, which showed that the production as per the registers tallied with the sales as shown in regular books of account.

10.3 The assessee further submitted before the AO, that it might be possible that the sales of other products might have been inadvertently included in the sale of milk products, but as far as the sales value is concerned the sales value of all the products put together tallied with the sales as shown in the books of account. Hence, according to the assessee, there was no question of suppression of sales.

10.4 However, the AO found several defects in the said chart submitted by the assessee-group. Firstly, the quantity of milk available was less while the sale was more. That, according to the AO, clearly showed that unaccounted milk had been purchased and sold.

10.5 The second defect, according to the AP, was that in cases of paneer and cream there had been more production and less sales. Hence, according to the AO, this was a case of suppression of sales. The AO, further argued that since the expenses in respect of all such production of paneer and cream have already been debited to P&L a/c, the entire unaccounted sales were to be treated as unaccounted income. The AO worked out the unaccounted income in the former case by applying GP rate of 13 per cent on the difference in values of sales and in the latter case by treating the entire difference as unaccounted. The total unaccounted/suppressed sale of milk and milk products was calculated by the AO at Rs. 68,65,134 which pertained to both the concerns, viz., M/s Modem Dairy & Ice Plant and M/s Modem Cream Dairy Ind. (P) Ltd. The shares in the above total unaccounted/suppressed sale were computed by the AO according to the respective turnover figures of the two concerns and thus an amount of Rs. 38,44.476 was added back in the hands of M/s Modem Dairy & Ice Plant @ 54 per cent and an amount of Rs. 30,20,658 was added back in the hands of M/s Modern Cream Dairy Ind. (P) Ltd. @ 46 per cent.

10.6 In the first appeals, the CIT(A) upheld the above additions on the ground that the rates at which milk and its various products are sold vary widely. Further, consumption of milk in the production of various products varies depending upon the items produced. Hence, according to the CIT(A), quantity of milk sold cannot substitute quantum of sale of milk products. Hence, he held that the excess sale price of milk products cannot offset shortfall in the quantity of sale of milk or for that matter of purchase that has been noticed by the AO, and brought out in the assessment order. Hence according to the CIT(A), failure on the part of the appellants' representative to substitute and justify shortfall and excesses, the additions made were to be upheld.

10.7 In the present appeals before us, the assessee challenged these additions first. During the course of the hearing of the appeals before us, the learned Authorised Representative of the assessee submitted that in the first place the said documents are not production registers in the strictest sense of the word. The said documents are rough records of production and dispatch maintained by floor level staff. He explained that pp. 345-352 of the paper book Part II of M/s Modern Cream Dairy Ind. (P) Ltd. and M/s Modern Dairy & Ice Plant are a sample of the seized documents and that a perusal of the said pages would show that the same contain records of production and dispatch. Page 347 is an example of production. The top part of the page contains details of milk received. It contains invoice number, name of the party, item (usually whole milk) quantity and fat. The "fat" denotes the quality of milk received. Below that is a recording of opening balance of milk, to which is added the receipt which is the aggregate of the notings on the first half of the page, from which consumption of milk for making different items is deducted. The details and break-up of such consumption is recorded on lower half of the page. The balance is then compared with the physical balance and the "Ex" i.e., excess or deficit r is recorded. Page 348 is a recording of item-wise production and dispatch. Here, "W-Pkt" stands for whole milk packets, "W-loose" stands for whole milk loose, "T-Pkt" stands for Tone Milk whole, "T-loose" stands for toned milk loose, then there is cream, malai, paneer, fresh paneer, butter, curd, ghee and skimmed milk. "Pvt. Ltd." Stands for M/s Modern Dairy Ind. (P) Ltd., "Ice Plant" stands for M/s Modern Dairy & Ice Plant, "D/o" stands for delivery order, "R. Yadav" stands of the delivery person and "cash sale" stands for the same. The aggregate of all this is the total quantitative sale item-wise. The lower part of the page records opening balance, production, receipts and return item-wise of both the concerns.

10.8 It was explained by the learned Authorised Representative of the assessee that on the other hand, pp. 353 and 354 are a sample of the sales register maintained by the assessee. Here categorisation is maintained of taxable and tax-free items. He continued that a perusal of seized documents vis-a-vis the regular books would show that whole milk pkt. whole milk loose, skimmed milk pkt., skimmed milk loose, toned milk pkt. and toned milk loose are all separate items as far as sale price is concerned. However, at the same time, all the above items fall under the category of milk. The learned Authorised Representative on behalf of the assessee had further submitted that in preparing the chart presented before the Department, the assessee resorted to the concept of average pricing. But in the sales register there is the exact categorization. Hence, according to him, the difference.

10.9 The learned Authorised representative of the assessee had further submitted that the above-stated chart prepared by the assessee and presented before the Department, was merely a general working to highlight the fact that the same was totally included in the regular books of both the concerns. He argued that the said registers are merely memorandum records is further established from the fact that no break-up of taxable and tax-free items were maintained therein.

10.10 The learned Authorised Representative on behalf of the assessee again submitted that furthermore, even in the additions made, the confusion in the mind of the AO, is very obvious. When the quantity of milk is less while the sale is more, the AO, assumed that unaccounted milk has been purchased and sold and, whereas in cases of other items like curd, butter, etc., where the sale is less and the production is more, he has assumed suppression of sales and has applied a GP rate of 13 per cent on the difference and treated the same as unexplained. Here the very reason for adding the GP is not clear. If going by the AO's opinion of sales of milk being shown without corresponding purchases then obviously the appellants have offered more by way of profit than what is reflected in seized documents. Similarly where the difference of sale values is added, the learned Authorised Representative of the assessee had argued that in the seized documents themselves the assessee have worked out excess or deficit of milk clearly emphasizing the fact that physical balance and book balance often differ. This could be due to several reasons like pilferage, loss in transit, etc. In this regard the fact that milk and milk products are perishable in nature cannot be overlooked.

10.11 The learned Authorised Representative on behalf of the assessee had finally argued that an important point though put up before the Department but ignored is that the sale of milk might be included in sale of milk products. This may happen because in dairy business one item invariably becomes the raw material for the other. For example milk is the raw material for curd and curd is the raw material for ghee. He argued that the overall quantitative tally is more important and is required to be taken into account.

10.12 On the other hand, the learned Departmental Representative, relied strongly on the orders of the authorities below.

10.13 On a perusal of the records including the seized documents and also comparing the same with the regular books of account (copies of which have been furnished before us), we are inclined to agree with the contentions on behalf of the assessees. We are of the opinion that actually milk and milk products are similar items and that the first is used as the raw material for production of the second. Again, different items of milk products also form raw materials of other items as pointed out by the assessees. The seized books are not books of account maintained accurately but on the other hand, are merely memorandum of rough records of production and dispatch, which they actually are as can be found from a perusal of them. Therefore, accurate maintenance of item-wise details therein cannot be expected. This is also clear from the fact that whereas in the regular books, items are categorised as taxable and nontaxable items, no such categorisation is found there in the seized documents. Hence, the seized books cannot be considered to represent duplicate sets of books of account recording the actual figure as against the regular books of account or even as supplementary sets of books of account. If a very wide discrepancy were, therefore, found between the regular books and the seized books, that would have been a cause for concern. Here, the most important aspect to be taken care of is that the production figures as recorded in the regular books do tally with those in the seized documents, if milk and milk products are considered together. The explanation furnished by the assessees regarding the different rates of various items of milk products also appears to be quite satisfactory. Hence, according to us, there is no case for considering the seized documents to be completely different sets of account and for making additions on that basis. Again, there is no doubt about the fact that the AO has applied different criteria for arriving at undisclosed income in respect of milk and milk products and has tried to hit the appellants in two opposite ways, which is not at all warranted. Taking an overall view of the matter, we are satisfied that when shortage in sale of milk is compensated by equivalent excess in sale of milk products, the discrepancy gets explained and there is no question of making any addition on account of undisclosed income regarding this matter. We have, therefore, no hesitation in deleting the additions in respect of both the assessees on this issue. We do so.

11. In the case of M/s Modern Cream Dairy Industries (P) Ltd., there is a ground against sustenance of addition of Rs. 5,28,559 on account of alleged suppression of sale of ghee. During the course of search, documents identified as A-18 and A-19 were found from the premises of the appellant-company. The same were explained to be "suchna" books, i.e., instruction books containing rough notings. The versions of the assessee before the AO were as follows. The figures of production of ghee noted therein were not the figures of fresh ghee produced. Those were the figures of production of ghee including the production of ghee made earlier. The assessee further submitted that the ghee was produced and kept in cans in molten form. ghee has to be packed in molten form only. Depending on the demand the molten ghee is packed. If the ghee in the cans freezes before packing then the frozen ghee is re-used for production in the next batch. The frozen ghee is re-melted and shown as production of that batch. Hence the ghee actually packed should be treated as production. The same is shown as sales in regular books and hence there was no suppression of the same.

11.1 However, the AO refused to accept the explanation of the assessee and on the aggregate of alleged production of 6822.3 kgs. as worked out from seized registers A-18 and A-19, he applied the average sale price of Rs. 140. From the figure of Rs. 9,55,122 so worked out, sales as per books being Rs. 4,26,562 was deducted and the balance Rs. 5,28,559 was treated as suppressed sale of ghee and added back. The same was confirmed in the first appeal.

11.2 During the course of hearing of the further appeal before us, the learned Authorised Representative on behalf of the assessee had submitted that before reaching any kind of conclusion the seized document has to be considered in its entirety. He pointed out that the perusal of the said seized documents being pp. 190-344 of paper book Part II of M/s Modern Cream Dairy Industries (P) Ltd., and M/s Modern Dairy & Ice Plant would show that the same is an information and instruction register maintained by: staff of one shift to update the staff of the other shift. The kind of recordings therein would clearly reflect the fact that the same was maintained by floor level people who were not very educated or knowledgeable. He argued that the recordings made by these people cannot be taken to be very reliable as the same has not been recorded by any person of responsible position. The learned Authorised Representative of the assessee further argued that the AO did not even bother to question the people maintaining these records for verifying the version of the assessee and simply brushed aside the explanation of the appellant without any rhyme or reason. The learned Authorised Representative of the assessee concluded that the conclusion reached by him is arbitrary and not based on any fact found in the course of search. On the other hand, the learned Departmental Representative strongly supported the orders of the lower authorities.

11.3 We find enough substance in the arguments on behalf of the assessee. The seized documents in question are found to be rough notings as explained by the appellant and not of much importance. The AO did not put the same to any process of examination, enquiry or verification. In absence of the same, the documents do not seem to have any evidentiary value. On the other hand, the explanation furnished by the appellant about re-circulation of manufactured ghee seems to be quite plausible. The addition is found to have been made without appreciation of the proper facts and more on surmise than on actual examination. The addition is, thus, unwarranted and is being deleted.

12. In the case of M/s Modern Dairy & Ice Plant, the assessee has claimed bad debt of Rs. 14,07,500 in respect of certain loans given in earlier years on the basis of certain seized documents. The claim of the assessee has been rejected by the lower authorities. We are of the opinion that firstly that since the loans were never recorded in the proper books of account nor written off therein, there is no scope for allowing the same under s. 36(1)(vii). Furthermore, a block assessment is meant for assessing the undisclosed income of an assessee on the basis of materials found during search and not for allowing any claim for deduction in respect of certain items not recorded in the regular books of account. Hence, we uphold the orders of the lower authorities on this issue. The appellate ground is being dismissed.

3. In the result, the appeals filed by the individual assessees and M/s Arora Construction & Developers are allowed. The appeal filed by M/s Modern Cream Dairy Industries (P) Ltd. is also allowed while the appeal filed by M/s Modern Dairy & Ice Plant is partly allowed.

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