This appeal has been preferred by the assessee against the order of learned Commissioner (Appeals), Rajasthan-II, Jaipur dated 25-2-2000, for the block period 1-4-1987, to 28-9-1997.
Ground Nos. 1 to 1.13 relate to the addition of Rs. 72,88,982 as unexplained investment under section 69 of the Income Tax Act, 1961.
Briefly the facts are that a search was carried out at the business premises of the appellant firm and its sister-concern and residence of the partners on 28-9-1997. The assessee is a partnership firm and is engaged in the trading of silver, silver utensils, silver ornaments and gold ornaments. The firm consists of 5 partners, namely, S/Shri Kanhaiya Lal Mahendra Kumar, Raj Mal, Devendra Kumar and Jinendra Sogani. The main allegation against the assessee was that they are engaged in unaccounted purchases and sales of silver and silver utensils as a large scale. During the search operation at the residence of Shri Mahendra Jain (Sogani) loose papers and summary sheets as per Annexure-8 to Exhibit 1 to 46 dated 7-10-1997, were seized when the search was concluded Shri Mahendra Jain partner stated that the loose papers related to the firm M/s. Manak Chand Kanhaiya Lal and M/s.
Sogani Jewellers, Johari Bazar where he is a partner. Both these firms are doing business from the common premises having common stocks, etc.
The assessee could not segregate the loose papers firm-wise. The assessing officer gave finding that these loose papers belong to the appellant who are the main firm. From these loose papers and summary sheet, the assessing officer found a peak credit from financial years 1991-92 to 1996-97 of Rs. 88,33,491 which pertains to financial year 1992-93. Out of that, for the financial year 1991-92 Rs. 65,56,735 was introduced in that year itself. Balance Rs. 22,74,756 pertains to financial year 1992-93. He further found that this peak credit includes Rs. 15,44,509 was reduced from the peak credit of Rs. 88,33,491 and the balance of Rs. 72,88,982 was considered as unexplained investment under section 69 as under : The assessing officer came to this conclusion by considering that there is a fact that the assessee has tried to convert the unaccounted income as loan which is undisclosed income because (b) Nowhere in these loose papers the names of those finance brokers are mentioned through whom the assessee claims to have taken loans.
(c) Only few alphabets are mentioned which assessee decodes as the names of finance brokers. These codes are not identical and in some cases not logical.
(d) Notices were issued and enquiries were made from the finance brokers who have denied to have made any advance or transaction of money in cash with M/s. Manakchand Kanhaiyalal and M/s. Sogani Jewellers. Their books of account were verified and no such entries as claimed by the assessee were found.
The assessing officer was of the view that the assessee was investing its undisclosed income and not declaring the same to the department and hence addition has been made by applying section 69 of Income Tax Act, 1961. Besides this, the stock was also found short for which a separate addition has been made by the assessing officer. All these additions have been confirmed by the learned Commissioner (Appeals).
The learned counsel for the assessee contends that the addition of Rs, 72.88 lacs made by the assessing officer on account of credit entries found recorded in the seized loose papers is not tenable. The same is based on suspicion, surmises, conjectures and imaginations and is without any cogent evidence and material available with the assessing officer. Substantive addition could not have been made by making wrong presumption that the assessee tried to convert the unaccounted income as loans and the same has been undisclosed income. The credit entries in fact are the loans raised by the assessee through finance brokers.
The seized papers prove such a claim. The names of the brokers were provided with addresses. The statement recorded behind the back of the assessee of the brokers are of no evidentiary value and deserves to be ignored or excluded. It was further contended that the loans were taken by Shri Mahendra Kumar through finance brokers and the impugned amount was not in the nature of income and not taxable as undisclosed income of the appellant. No entry of purchase and sales were found entered in the record except that all the entries related to the loans raised through the brokers. A reference was drawn on paper book pp. 100 to 101 where entries as regards receipt of loan raised through brokers, entries as regards repayment of loan and the entries as regards payment of interest through brokers, etc. have been given as few instances only. The assessee received loans from these brokers. The alphabets represent the names of brokers and these were decodified by the said assessee Shri Mahendra Kumar in his statement recorded under section 132(4) of the Act. The entries so stated are as under : Reference was also drawn at paper book pp 97 and 98 where the abbreviations have been indicated against the names and addresses of the brokers and such details have been placed at paper book pp 97 and 98 as under : The assessee claims to have approached these brokers but he could not obtain the addresses of the depositors and confirmations against the deposits made by them through the brokers due to their genuine fear of harassment, etc However, it has been placed on record that a search was carried on one of the brokers S/Shri Padam Chand Jain, Rakesh Jain and Tara Chand Jain and others. The abbreviations of their names has been recorded in the loose papers found and seized from the assessee-firm as PR. In his statement recorded at paper book page 159 Shri Padam Chand Jain has admitted that he is working as finance broker and has admitted about the appellant. No denial has been made by him for getting loans advanced to the appellant firm. The copy of assessment order of said broker has also been placed at paper book pp 165 to 197 and in this assessment order at paper book page 170 it is clearly indicated that Shri Mahendra Kumars account is on page 223-K-115 (lenders ledger).
Against this account on page 101, annexure A-18 (regular party ledger of Shri Mahendra Kumar has also been recorded). The assessing officer has included brokerage as income of Padam Chand Jam for the advances made by the said person as broker. No addition on account of loose papers has been made in the hands of Shri Mahendra Kumar. From this it clearly stands established that Shri Mahendra Kumar has not been found doing business independent and all the transactions recorded in the loose papers has been considered to be belonging to the firm and, therefore, the transaction recorded in the loose papers and books found from the brokers are nothing but the transactions of the firm for the loans procured through him as a broker on which interest has also been paid and thus the claim of the assessee that the transaction in the loose papers are loans raised by it stands duly corroborated with the statement of Shri Mahendra Kumar at paper book pp 54 & 55. It is thus contended by the learned counsel that the credit entries represented in these loose papers are loan but not the income. These loans have been taken through specified persons and the same are duly corroborated by way of seized material and search of Shri Padam Chand Jam. No evidence of income has been found or brought on record by the assessing officer.
It was thus contended that what is apparent is real unless otherwise proved. No assessment has been made on M/s. Sogani Jewellers. As a matter of fact, it was also submitted that these loans were raised by the assessee to recoup the losses which were procured by short-term loan through a particular broker and thereafter further loans were raised by making repayment to the first and like this loans were taken one after the other for repayment of earlier loans so raised and thus the only purpose of raising such loans was to recoup losses and no investment has been made. The assessing officer has not found any investment made by the assessee which are not recorded in the books of account and hence the conclusion drawn by the assessing officer is unjust and uncalled for. No addition was required to be made. The learned Commissioner (Appeals) has also gone wrong in saying that the names of the brokers are not mentioned in the seized papers and has erred in not accepting the claim of the appellant that the amount recorded in the loose papers are borrowings or loans which the assessee has in fact established and is verifiable from the paper book filed in two volumes containing 379 pages.
The learned authorised representative further contends that the learned Commissioner (Appeals) has also erred in holding that section 69 lays the onus not on the department but on the appellant for proving the claim made of borrowings or loans through she herself has accepted that assets and expenditure to the extent of this peak credit had not been found during the course of search. It has also been argued by learned authorised representative that no addition has been made under section 68 neither section 68 has been, invoked nor any books have been found.
The loose papers are not books but are documents. The department has found stocks as short and no investment has been found. For making addition receipts, if any, should be in the nature of income and the burden is on the department to prove that the assessee is in a capacity to earn. Reliance has been placed on the decision reported in the case of Parimisetti Seetharamarnma v. CIT (1965) 56 ITR 532 (SC), in the case of Roshan Di Hatti v. CIT 1977 CTR (SC) 200 : (1977) 107 ITR 938 (SC), in the case of CIT v. Daulat Ram Rawatmull 1972 CTR (SC) 411 : (1973) 87 ITR 349 (SC), and in the case of CIT v. SMS. Investment Corpn. Ltd. (1994) 207 ITR 364 (Raj). This burden has also not been discharged for making the substantive addition. Besides this, the assessee has placed reliance on the decisions referred in written submissions and synopsis filed and placed on record.
On the other hand, the learned Departmental Representative contends that the assessee filed a block return declaring nil income and incriminating documents were found from the residence of the partner Shri Mahendra Kumar, who has made an admission that the papers related to the appellant firm and M/s Sogani Jewellers but he failed to segregate the same and has shown his inability to do so. The assessing officer was left with no other alternative but to treat the same as belonging to the appellant firm. The assessing officer has worked out the peak of the unaccounted investment of the assessee at Rs. 72.88 lacs which has been added as his income. A perusal of statement of Shri Mahendra Kumar will reveal that he did not have details of brokers nor any confirmation were filed by him. The amount so recorded as credited are nothing but investment of the appellant as the money given in the market is also an investment. The department has found the investment made in the names of various creditors which has not been explained and as such once the department has found this as investment, the onus has shifted on the assessee to explain the nature and source of the investment and the learned Commissioner (Appeals) has drawn a correct conclusion by holding that the provisions of section 69 lay the onus not on the department but on the appellant for proving the claim made of borrowings loans. The assessee has also not given any evidence for recoupment of losses. Shri Padam Chand Jain, the alleged broker advanced to Shri Mahendra Kumar but does not contend that the loans have been advanced to the appellant. The assessee has also not given any conclusive evidence that these transaction, were found recorded in the records of the brokers. Summons were issued by the assessing officer to various brokers but they did not turn up. For this order sheet entry dated 1-9-1999, is relevant. Thereafter an Inspector was deputed who recorded their statements and none of these brokers has admitted of having given any cash to the appellant. The copies of such statements are at page 159 onwards. The assessment of Shri Padam Chand Jain, the said broker also speaks of Shri Mahendra Kumar and not co-related with the appellant. The assessee has not proved as to whose money was this which has been claimed in the loose papers and what is the source thereof. Since onus was on the assessee and the same having not been discharged by him, the action of the authorities below needs to be upheld. It has also been contended that once the assessee claims that he has taken the money, the onus is on him to prove the nature and source thereof. The assessee has failed to produce any of these brokers from whom such credits have been received nor any evidence thereto has been filed. It is unaccounted money of the assessee which has rightly been taxed by the assessing officer as peak amount and the burden was on the assessee. The assessee was carrying secret business and the income thereof was assessable under section 69. The reliance has been placed on the various decisions as under : (iv) Jamnaprasad Kanhaiyalal v. CIT (1981) 123 CTR (SC) 146 : (1981) 130 ITR 244 (SC);CIT v. Orissa Corporation (P) Ltd. (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC) 1.
(ix) Laxmi Narain Gupta v. CIT (1980) 15 CTR (Pat) 306 : (1980) 124 ITR 94 (Pat); (ix) Himmatram Laxminarain v. CIT (1986) 53 CTR (P&H) 390 : (1987) 161 ITR 7 (P&H).
The learned Departmental Representative further contended that the assessing officer at page 5 has categorically not accepted the version of the assessee that the firm was in losses. The same is supported by the fact that assessee himself has filed return declaring income. The assessee has also not explained the utilisation of alleged loan. In fact it is his own money invested in the market and the addition has been rightly made and deserves to be confirmed. He supported the decision taken by the learned Commissioner (Appeals).
In rejoinder, the learned authorised representative contends that the department has nowhere found as to what investment has been made, to whom it has been made and without doing so it cannot be said that the deposits in the loose papers are the investment by the assessee. The contention of the revenue that the amount has been advanced in the market is a fallacy as there is no material to show as to whom, when, through whom and what amount has been advanced by the assessee. The contentions raised by the department are without any material available with the assessing officer on record. The assessing officer himself has considered as bogus credit as referred at page 6 of his order and this is the reason peak credit has been added by him. The assessee has established that these were loans. Section 69 lays burden on the assessing officer which he has failed to discharge. Details of brokers were also given. Post-search statements were also recorded and assessee has also furnished details on 5-2-1998, copy of which has been placed on paper book. Since the assessee was not in a position to produce the brokers, he has requested to issue summons and produce the brokers for examination but the assessing officer has failed to do so. The department has also failed to establish that it was income. Condition of section 69 has not been fulfilled. The case laws relied upon by the department are not relevant to the facts and circumstances of the case.
In view of specific fact that in list of cases of Supreme Court relied upon by the revenue the circumstantial evidence was recorded and found.
The assessee in that case was on the ship and was found to be owner and in possession of the material. But in this case the department has failed to prove that the entries belong to the assessee and not to the persons whose names have been recorded in the documents. No secret business has been found. No unaccounted sales or purchase has been found. The assessee has discharged its onus. It was, therefore, prayed that the addition could not be made under section 69 and deserves to be deleted.
Rival submissions have been heard in the light of precedents relied upon by the parties and with reference to the paper book filed by both the parties The main plank of the argument of the assessee is that the amount of Rs. 50,31,735 for financial year 1991-92 and Rs. 22,57,247 for financial year 1992-93 totalling to Rs. 72.88 lacs included as undisclosed income of the block period from 1-4-1987 to 28-9-1997, are loans and borrowings but not the investment assessable under section 69 of the Act.
During the course of search loose papers found from the residential premises of Shri Mahendra Kumar Jain and inventorised as Annexure A-2, exhibits 1 to 46 have been claimed to be belonging to the assessees two firms namely, M/s. Manakchand Kanahiya Lal and M/s. Sogani Jewellers.
The said Shri Mahendra Kumar Jain is a partner in both these firms. It has not been denied by the assessee that both these concerns are carrying business from the common premises for which common stock etc.
have been maintained and it is not possible to demark the portion of each of these two concerns. Neither Shri Mahendra Kumar Jain nor any other partner of M/s. Sogani Jewellers have claimed ownership in these loose papers. The assessing officer was, therefore, Justified in coming to the conclusion that the loose papers found as per Anexure-A/2 exhibits 1 to 46 from the residential premises of Shri Mahendra Kumar Jain belong to the firm M/s. Manak Chand Kanahiya Lal, the appellant.
The assessee has submitted detailed replies before the assessing officer vide his letters dt. 10-8-1999, 20-8-1999, 6-9-1999 and 21-9-1999, explaining that the seized loose papers are showing undisclosed borrowings. Copies of these letters have been placed at paper book pp 88 to 121 and the same have also been perused. The search in this case was carried out on the allegation against the assessee that they were engaged in unaccounted purchase and sale of silver and silver utensils at a large scale. The documents so found during the course of search do not reveal of any unaccounted purchase and sale of silver and silver utensils at a large scale nor the assessing officer has brought out any material with respect thereto. The loose papers so found do not appear to have been maintained by the assessee for producing to the department for income-tax purposes. All the loose papers or complete records have not been found or seized and thus complete details are not traceable. However, the seized loose papers reflect daily transaction against which complete names of the persons and some initials have been mentioned. The loose sheets of daily transactions have also been summarised some of which have been placed at paper book pp 147 to 155 of the assessees paper book. The assessee has contended that the abbreviations denote names of brokers through whom loans have been raised and the names of the lenders have been mentioned followed with the abbreviations from whom the said broker arranged loan for the assessee. The amount of quantum of loan so raised is also referred in the said transaction. The summary sheet at page 147 which is a part of the seized annexure A-2 reveals the summary prepared under various abbreviations like S, PR, K. Under each alphabet the assessee has mentioned the amount, name and date. When asked during the course of hearing one such entry under the abbreviation as it was contended by the assessee that the alphabet S stands for the name of a broker and similarly another abbreviation of PR stands for the name of another broker. When asked the abbreviation "PR", it was explained to be code of Padam Chand Jain and Tara Chand Jain, Pano Ka Dariba, Kawasji Ka Rasta, Ramganj Bazar, Jaipur. Names of all such brokers with their abbreviations in alphabet finds place at pp 97 and 98. The assessee has explained the transactions written below the abbreviation PR with details of loans received with name of broker, amount, name of person from whom such loans were taken by the broker for the assessee with date thereof is also found to have been mentioned. Like this several transactions have been recorded and summary sheet prepared by the assessee in the loose papers for his claim of taking loans through various brokers. Paper book page 122 of Annexure A-2/4 of page 28 of the seized annexure when examined found to reveal various entries.
Against the entry of credit of 50 denoting to be Rs. 50,000 admitted by the assessee the name of Sumer Lal is found to be recorded with figure of-1.6 and 2(F). The figure of 1.6 is claimed to be denoting rate of interest and TF(2) is stated to be taken for 2 months for which interest has been paid in the entry mentioned on this paper. Similar claims have been made with respect to the abbreviation of various names and entries. The particulars entered have been examined in order to verify the correctness of the veracity that the abbreviations have been used for the brokers and the amount recorded are the loan through these brokers besides claim of making payment of interest on such loans. As a few instances only, we find that the following deposits received and credited against the alphabets with name of the lender and amount advanced and these have been repaid in these loose papers : (a) Paper book page 247 bears SG and name of party is Suraj Prakash for raising deposit of a figure of 100. This has been repaid at paper book page 327.
(b) Paper Book page 327 bears K and name of party is Sunny Karnawat for raising deposit of a figure of 100. This has been repaid at paper book page 320.
(c) Paper book page 245 bears SG and name of party is Ram Babu for raising deposit of a figure of 100. This has been repaid at paper book page 315.
(d) Paper book page 298 bears S and name of party is Nirmal for raising deposit of a figure of 100. This has been repaid at paper book page Shri Padam Chand Jain whose name has been codified by the appellant as PR was also searched by the department. Assessee requested the assessing officer to summon the seized record of the said broker but the same was not summoned and no verification was done by the assessing officer to dislodge the claim of entry under the alphabet PR made by the appellant. From assessment order of Shri Padam Chand Jain, broker, we find that brokerage income has been assessed at his income and the assessing officer of Shri Padam Chand Jain has given a categorical finding that the loans taken by him from outside the books are recorded in coded form. The name of Shri Mahendra Kumar Jain (Sogani) finds place in the ledger maintained by the said broker for the transaction made in cash and Shri Mahendra Kumar Jains account is indicated to be that of a regular party. This supports the contention of the appellant that the loans were raised through the brokers in cash and more particularly when the department itself has not treated any income or investment through the loose papers found in the premises of Shri Mahendra Kumar Jain in his hands but that of the appellant. The transaction done by Shri Padam Chand Jain are thus done by Shri Mahendra Kumar Jain for the firm by accepting his statement that the loose papers found and seized belong to the appellant. The assessing officer has also not examined all other brokers whose names and addresses were duly provided by the assessee nor made available for cross-examination. It is not the case of the department that all such brokers are not traceable. The Inspector deputed by the assessing officer did meet all these persons, who made certain enquiries and recorded their statements. It is not understandable as to why the assessing officer did not enforce their attendance by taking appropriate action as available under the law and why proper statements were also not recorded and any contention that was being made by such persons for denying the transaction in cash with the appellant was not confronted to dislodge the explanation rendered by the assessee by making them available for cross-examination more particularly when the department has invaded the rights of the appellant by using last arsenal of searching a person available with it. In the absence of such an attempt, the statements recorded behind the back of the assessee, which have not been taken on oath nor read over and accepted by those persons cannot be said to be valid statements and the same cannot be used to draw any adverse inference against the assessee. We also find that the assessing officer has not brought on record any material to show that the credit entries for which peak has been worked out represents assessees own money or the partners money or income of any of them. It has not been related to any of the transactions of purchase or sales or any unaccounted business on the basis of which a search was conducted at the premises of the assessee. The authorities below have also not brought on record whether the assessee carried any secret business of money lending or that it has earned any interest income on making further advances after raising loans and deposits through the brokers. There was no such allegation against the appellant for carrying out a search at his premises also. There is also no case of the department that assessee is engaged in the business of money-lending as no material is brought on record in this respect also.
Before treating the receipts as income, the assessing officer was duly bound to show that the amount represented assessees income and that such income was his unaccounted income.
Their Lordships of Honble Supreme Court in the case of Parimisetti Setthramamma v. CIT (supra) held that the burden is on revenue to prove that a particular receipt is taxable.
In Mehboob Productions (P) Ltd. v. CIT (1977) 106 ITR 758 (Bom) it was held that revenue can tax only those receipts, which first have been proved to be income in the hands of the recipient and secondly, the same have to be proved as non-exempt from tax.
Mumbai Tribunal in Assistant Commissioner v. Shailesh S. Shah (1997) 59 TTJ (Mumbai) 574, held that it is revenues onus, before assessing any receipt as taxable income, to prove that the receipt in the hands of the recipient is income and this can be proved or established only on the basis of some material or evidence.
The assessing officer has failed to prove that the said credits represented any income earned by the assessee before coming to a conclusion that the assessee has tried to convert the unaccounted income as loans. The findings of the assessing officer at page 6 reveal that the fact of the creditors has not been denied by her. The assessing officer herself accepted as deposits and that is why peak credit was taken and no investment or expenditure or asset was found.
No material has been brought by the assessing officer with respect to the investment made by the assessee before coming to the conclusion that the amount of Rs. 72.88 lacs are the investment. What is the nature of investment and how she treats such transaction as investment, when made, to whom given or where invested has also not been brought on record by the assessing officer. The whole exercise appears to have been undertaken by her under a great suspicion. The persons whose names have been found on record under the alphabets and codes in the loose papers from whom the brokers took loan for the appellant have not been verified by the assessing officer. No enquiries have been made from the brokers in this respect and, therefore, holding a view that the peak credit so worked out are the investment is nothing but a fallacy. It is settled law that suspicion howsoever strong cannot take the place of proof. This has been held by the Supreme Court in the case of Uma Charan Shaw v. CIT (1959) 37 ITR 271 (SC). Keeping in view the various explanations given by the assessee and examination of material placed before us, we find the explanation of the appellant is a convincing explanation and in the absence of any material, we are inclined to agree that the alphabets like PR and others have been coded for the names of brokers through whom the appellant assessee raised deposits on interest. We also find that the assessee has paid interest on such deposits and the same appears to have been paid out of loans raised. In the absence of any receipt as income from interest, such payment of interest from the deposit also supports the claim of loss by the appellant. Keeping in view the overall conspectus of the case, we hold that the department has not been in a position to find out any substantive income nor any investment before attracting provisions of section 69 of the Act and the amount of peak credit of Rs. 72.88 lacs calculated by the assessing officer is nothing but the loans and deposits raised by the assessee through the source recorded in the loose papers and do not represent income or property wholly or partly of the appellant. The learned Commissioner (Appeals), therefore, has erred in giving a finding that the appellant is found to be indulging in silver and silver utensils and moneys have been advanced to the parties and also that the names of the brokers have not been mentioned in the seized papers. The same is without any basis and material on record. We, therefore, hold that the assessee has been able to substantiate his case that the deposits of Rs. 72.88 lacs reflect only the borrowings and loans and the same could not have been treated as substantive income in the hands of the appellant.
The assessing officer has made addition under section 69 by treating the said borrowings of Rs. 72.88 lacs as unexplained investment. The said provision of section 69 are deeming in nature and the income is deemed as income by fiction alone. The assessing officer was, therefore, under a heavy burden to discharge that the amount of credits of Rs. 72.88 lacs are the investment made by the assessee which is a sine qua non of section 69. This has not been done. The addition, therefore, could not have been made for the deposits/loans so raised by the assessee as unexplained investment under section 69 by giving a finding that the assessee has made investment. There is no other evidence with the department except seized loose papers to show that there has been any investment. We also do not find any other evidence to show that the assessee has made any investment. The addition has been on account of peak which is on account of credits/deposits received by the appellant. The assessing officer has not been judicious in applying provisions of section 69 for bringing the amount to tax.
We, therefore, hold that the amount of deposits are loans taken by the appellant. There could not have been added as unexplained income under section 69 of the Act for deeming undisclosed income for the block period of the assessee under the provisions of Chapter XIV-B of the Income Tax Act. The said addition of Rs. 72,88,982 is, therefore, directed to be deleted.
In the next ground the assessee is aggrieved with the addition of Rs. 1,38,217 on account of stock of silver and silver utensils, etc. found short at the time of search. The inventory taken at the time of search reveal that there was stock of Rs. 19.28 lacs as against the estimated stock of Rs. 31,84,519. The assessees explanation that stock weighing 67.196 kg found from the premises of the partners belong to the firm was not acceptable to the assessing officer for the reasons that there was no stock register nor any details were found which could reveal that the stock is lying at the residential premises of the assessee.
Besides this, Shri Raj Mal. Jain was not aware of the quantum of the stocks lying at the residence of a particular partner. The assessing officer, therefore, came to the conclusion that the assessee-firm is using firms stocks out of books and is having profit on such stock. She applied a g.p. rate of 11 per cent on the amount of short stock of Rs. 12,56,519 and accordingly Rs. 1,38,217 was worked out as undisclosed income of the assessee earned out of the stocks found short at the time of search.
The learned Departmental Representative supported the orders of the authorities below and argued that there was no entry in the stock register for taking the stocks at home by the partners. Any explanation given by them is an afterthought. Entries as found at page 30 is clearly a claim but same is not a conclusive evidence. The partner Shri Raj Mal gave only evasive reply. Since the assessing officer merely added the profit, the addition needs to be upheld.Rival submissions have been heard with reference to material available on record. Paper book page 30 which is a list of inventory of jewellery, etc. found at the residence of Shri Raj Mal Jain and Shri Mahendra Kumar Jam and others reveals that at SI. Nos. 6 and 7 of the inventory, there is a clear mention that silver articles belong to the firm M/s Manakchand Kanhaiya Lal. The statement of Shri Raj Mal Sogani recorded during the course of search placed at page 56 supports the explanation of the assessee, where in reply to question No. 2 the said partner has clearly admitted that some of the stocks of the firm remained at residence also. The revenue has not placed any material on record to show that there has ever been a practice in the business to make entries in the stock register in case the partners carried the stock of the firm at their residence for safe keeping or otherwise. The firm is a compendious name of partners and the actions of the partners bind the partnership. The partners have an implied authority as agent of the firm. Their statements, therefore, cannot be discarded so lightly without bringing any material contrary to it on record. The assessing officer has also not whispered even one word to treat the shortage of stock as sales outside the books before assuming 11 per cent profit on the shortage of stock of Rs. 12,56,519. How profit of 11 per cent could accrue on shortage of stock has also not been brought on record. Profit has been added merely on assumption and surmises.
Keeping in view the material brought on record by the appellant, the explanation that the stocks found at the residence of the partners is the stock of the appellant firm has to be accepted. We, therefore, direct the assessing officer to work out the shortage, if any, after giving set off of the stocks so found and explained to be belonging to the firm at the residence of the partners to the extent of 67.196 kg.
and for the balance of stock found short thereafter if any, he is directed to give a fresh finding and decide the issue afresh in respect of such balance shortage if any, and made substantive addition in the hands of the appellant firm M/s. Manakchand Kanhaiya Lal after affording reasonable opportunity of being heard.
We are not inclined to answer ground No. 3 raised by the assessee as the dispute on this account stands settled in ground No. 1 hereof. 18.
In the result, the appeal of the assessee is partly allowed.