Mange Ram Mittal Vs. Assistant Commissioner of Income - Court Judgment

Excerpt:

.....godown (l-13) was located at prem nagar and barsi gate and for imfl (l-l) at gupta wine place, g.t. road, hansi. the persons who sat at barsi gate were shri manohar singh, cashier, pushkar, salesmen jaiveer and sometimes jagdish godara. their statements were recorded on oath. that place was known as the gaddi. persons who managed l-l were pushkar aggarwal and subhash jindal. the assessee regularly came to barsi gate and checked the going on of the business and issued necessary instructions. he used to make surprise checks of the various vends. regular checking was however done by shri subhash, s/o jagan nath, resident of uklana who was mange ram's nephew. there were 2-3 salesmen at each vend. at the end of the day, the salesmen prepared a summary of sales bottlewise, calculation of cash, expenditure, opening stock and closing stock. breakages and other happenings were also recorded on those printed proformas captioned as "daily sales reports".around 9.30 to 10 p.m. total cash from various vends was carried to barsi gate and then handed over to shri manohar singh who counted the sales and kept in safes at barsi gate. cash was carried by shri manohar singh to his residence in.....

Judgment:

1. This appeal has been filed by the assessee on 23rd July, 1997 against the order of the learned AO being Asstt. CIT, Hissar Circle, Hissar, dt. 27th June, 1997 in the case of the assessee in relation to block assessment order under Section 158BC of the IT Act. This appeal has been assigned to us by the order of the Hon'ble President, Tribunal for disposal as well as for consideration and decision on the following question: What is the meaning and scope of phraseology, 'such other materials or information as are available with the AO and relatable to such evidence' appearing in Section 158BB(1) of the Act as substituted by the Finance Act, 2002 with retrospective effect from 1st July, 1995.

2. In this appeal the assessee originally filed grounds of appeal running into 24 pages. As these grounds were not in accordance with Rule 8 of the ITAT Rules, the assessee was directed to file concise grounds of appeal. Finally the assessee filed revised "Summarized ground of appeal" on 8th Dec., 2003.

3. In this appeal the assessee has disputed various additions made by the AO while computing assessee's undisclosed income within the meaning of Section 158BC. The learned AO has made an elaborate assessment order and for a full appreciation of the facts found by him and his conclusions it is necessary to recount the discussion in the assessment order at some length. We wish to add here that it would be appropriate to refer to the assessment order for a micro view. Facts of the case leading to this appeal as stated in the impugned order of the learned AO briefly are that a search under Section 132(1) of the Act was conducted on 28th June, 1996 at the residential premises of the assessee being 835/14, Yati Nagar, Hansi. On the same date residential premises of one Shri Manohar Singh, son of Shri Harbhajan Singh at Hansi was also searched. On the date of search statements of salesmen working at various liquor vends at Hansi, Bawani Khera, Tosham & Jind were recorded. During the course of search at the residence of Shri Mange Ram, cash Rs. 1,10,640; jewellery 59 grams; and certain documents/loose papers, etc. relating to liquor business were found.

From the residence of Shri Manohar Singh cash Rs. 8,57,490; jewellery 80 grams; and various documents relating to liquor business were found.

Thereafter the AO served notice under Section 158BC on the assessee on 11th Oct., 1996. After certain notices under Section 142(1) the assessee submitted return of undisclosed income under Section 158BC at Rs. 1,00,000 on 14th Jan., 1997. The AO thereafter made elaborate enquiries in which statements of a large number of persons were recorded and during the course of assessment proceedings the assessee was asked to explain a number of issues and granted opportunities to cross-examine a large number of persons.

4. According to the AO, the enquiries revealed that the assessee started taking part in liquor business somewhere in 1982-83 as a small wine contractor at Rania. After few years he purchased a house of his own at Rania. During 1988-89 he shifted to Hansi and started liquor business there at the same time continuing his liquor and moneylending business at Rania. The assessee lived in a rented house being No. 55, Yati Nagar, Hansi but thereafter he constructed his own house at 835/14 Yati Nagar and got admitted his son and daughter in the expensive schools of the region. The assessee purchased some land adjoining this house, a house in Hissar, a building by the name of Sunder Hotel and a plot of land at Hissar. According to the learned AO the assessee purchased many properties in benami names of his brother-in-law, also took benami contract in liquor business in the name of his brother-in-law Subhash and others.

5. The learned AO found that liquor business in the region was being carried out under various kinds of licences granted by Excise Department. From L-I vend English liquor was being sold on wholesale.

Those vends were not auctioned but allotment was made on application that could be renewed from year to year. L-I vendor could purchase liquor, on payment of excise duty, from any distillery. From L-2 vends liquor was sold in retail to consumers. These vends could be taken on auction. L-2 vendor could purchase IMFL only from L-I vends. L-2 licence was given for one year, was not renewable. Every year a fresh auction was conducted. L-2 vendor was not required to pay excise duty but had to obtain a permit. From L-13 vend country liquor was sold in wholesale. Such vend was being allotted on application. L-13 vender could purchase country liquor on payment of excise duty only from distilleries of Haryana. From L-14A vends liquor was sold in retail to consumers. Those vends could only be taken on auction. L-14 could purchase liquor directly from distillery or from L-13 vendor on payment of excise duty. According to the learned AO the assessee succeeded to outbid others every year for obtaining L-2 and L-14 licences in Hansi Circle. The assessee obtained licences in the names of different firms for different circles in different years. The learned AO reached this conclusion, even though the assessee claimed to an employee only, on the basis of various facts and circumstances and considerable material as unfolded in subsequent paras.

6. The assessee got involved in a dispute with one Shri Dalip Singh and he lodged FIR No. 114, dt. 15th April, 1996 at police station, Hansi.

In the FIR the assessee admitted to have taken the liquor vends of Hansi in auction since the year 1988-89. The assessee admitted to have interest in the firms either in his own name or in the name of benami persons. He claimed to have taken vends of Hansi during the year 1996-97 in the benami name of Mittal & Co. The assessee stated that since 1988-89 he had taken on rent the liquor vend at Old Bus Stand, Hansi which was in the name of Smt. Budhwanti, wife of Sardar Dalip Singh. At 6 p.m. on 15th April, 1996 the assessee collected Rs. 43,000 cash from various liquor vends and after handing over cash to the cashier Shri Manohar Singh he was sitting in front of country liquor vend. Around 6.30 p.m. Sardar Dalip Singh came in white Gypsy with three friends followed by one white Maruti car, one blue Maruti car and 2/3 scooters. Thus 12-13 persons including sons of Dalip Singh came and surrounded the assessee and put a revolver on his chest. As Dalip Singh cut his forehead with a Kirpan, his friends went inside the vend and beat up Shri Manohar Singh and snatched Rs. 43,000 as well as Rs. 8,000 - 10,000 already existing there. He also snatched gold chain from the neck of the assessee. The FIR was lodged by the assessee from Government Hospital.

7. The learned AO confronted the assessee with this FIR. The assessee stated that he was admitted to Civil Hospital in semi-conscious condition and was mentally disturbed. Police recorded his statement in that condition and therefore, it was possible that he stated that he was benami partner or it could also be that the police had written so taking the assessee to be wine contractor. The assessee stated that in common parlance anybody associated with wine business whether salesman or even driver was called liquor contractor. The learned AO did not find this explanation of the assessee acceptable. The police officials had first ascertained from Medical Officer of the Civil Hospital whether the assessee was fit to give a statement and only after that his statement was recorded. There was certificate of Medical Officer Government Hospital to that effect. In FIR the assessee had given minute details of the incident, amount of cash stolen, registration number of Maruti Gypsy, the colour of other cars and the names of several persons who had joined Shri Dalip Singh. In the statement the assessee had clearly stated that he was partner in the liquor vend and that Shri Manohar Singh was his cashier.

8. On 19th July, 1996 the assessee appeared before the ADIT, Hissar in response to summons. On that occasion the conversation was tape-recorded without the knowledge of the assessee. In that conversation the assessee admitted off the record that he was 40 per cent shareholder in Gupta Wine Place L-I, Hansi and 50 per cent partner in Bawani Khera. He also admitted having 45 per cent share in L-2 and L-14A vends in Hansi. The assessee admitted that he has lost one crore rupees in a particular year out of the total Rs. 2-1/2 crores earned by him and, therefore, the assessee was left with only Rs. 1 crore in cash and Rs. 50 lakhs in property. The assessee was asked if he had only 45 per cent share, then who were the other partners but he could not tell their names. In the conversation with ADIT the assessee also stated that he had never in his life signed any paper. That indicated that the assessee had indulged in benami transactions. The assessee also admitted that he had kept record of cash in code in some of the seized documents. The entries had been made in bogus names so as to hide his identity. The assessee admitted that various documents seized from the house of Shri Manohar Singh also similarly had coded record of his transactions. The learned AO noted that the voice of Shri Mange Ram on the tape-recorded conversation was identified by Dr. Narendra Kumar, IRS, who had in his capacity as ADI, Hissar recorded the conversation.

The voice of Shri Mange Ram was also identified by one Shri Jaiveer who was an old employee of the assessee. According to the learned AO, the recorded conversation had continuity, clarity and coherence that showed that there was no tempering. A copy of the cassette was given to the assessee along with the questionnaire dt. 23rd May, 1997 but the assessee did not file any reply.

Daily Sales Report, Summary Sheets, Cash Found and Statement of Sh.

Manohar Singh 9. During the course of search at the residence of Shri Manohar Singh, certain summary sheets were seized. Shri Manohar Singh admitted to have written the same and explained that those summary sheets were loose pages of cash book of the business. These were prepared daily in the course of business. In his statement Shri Manohar Singh stated that these summary sheets and other documents were prepared by him as cashier of the assessee. Particulars on loose papers were handed over to him by salesmen of various vends. From those documents Shri Manohar Singh prepared summary sheets. The assessee was furnished with the copies of the statements of Shri Manohar Singh as well as copies of documents seized from the residence of Shri Manohar Singh. The assessee did not dispute the documents and he did not cross-examine Shri Manohar Singh in that respect. The learned AO found that on the left hand column of each summary sheet first entry was opening cash balance followed by all receipts on account of sales, etc. On the right hand side all outgoings being purchases, expenses and loans, etc. were written. The amount of closing balance was then arrived at and carried forward as the opening balance in the summary sheet of the next day. As an illustration, the learned AO has in para 20 of his order elaborately discussed p. 32 of documents marked as D-12 being summary sheet of 11th June, 1996. This summary sheet indicated opening balance of Rs. 62,58,722. According to the statement of Shri Manohar Singh, this amount was arrived at by adding the entire cash received on account of sales of L-l, L-2 and L-14A vends at Hansi, L-2 and L-14A vends at Narnaund, Bawani Khera, Tosham and Jind and after deducting various expenses on account of purchases, excise duty, disbursement of loans, personal expenses of the assessee, etc. After opening balance, the summary sheet recorded sale from liquor vends at Hansi and cash received from liquor vends at Bawani Khera, Tosham and Jind, etc.

expenditure on purchase of liquor and excise duty at Hansi; Licence fee and other day-to-day expenses; cash used for personal expenses of the assessee and cash given by way of loans to various persons. Shri Manohar Singh used to receive daily sale proceeds in cash and tally with sales reports from all Hansi vends. During the course of search proceedings daily sale reports with respect to Hansi vends were found at the residence of Shri Manohar Singh for the period from 11th June, 1996 to 19th June, 1996. In his statement recorded subsequently Shri Manohar Singh confirmed that the sum of Rs. 2,15,380 on p. 32 of documents-12 represented total sales from seven liquor shops in the following manner: The information/entries of various liquor shops in summary sheet could be verified from daily sale report of various liquor vends. Daily sale reports were written by salesmen of the vends. Some of those persons were examined on oath and they confirmed that they were merely working as salesmen and used to write daily sale reports that were handed over to Shri Manohar Singh at Barsi Gate vend at Hansi along with cash.

These salesmen also identified some daily sale reports as having been written by them. The learned AO found that the statements given by the salesmen on oath were corroborated by seized daily sale reports as well as the statement of Shri Manohar Singh.

Some of those salesmen had been shown as partners in liquor vends at Hansi, Jind, Tosham, Narnaund, Bawani Khera etc The learned AO found that the third entry on p. 32 of document-12 of Rs. 1,13,337 represented cash received on retail sales from IMFL vend on 11th June, 1996. Break-up was given at p. 9 in the following manner: This page was written by one Pushkar s/o Kishan Lal who in his statement explained entries in the manner abovementioned. Similarly some other salesmen who wrote daily sales report, identified their reports as written by them and explained the contents.

10. The learned AO found that on some summary sheets there were certain other entries on the credit side. Those entries represented sales made from M/s Gupta Wine Place, Hansi to various liquor vends at place like Pundri, Loharu, etc. Shri Manohar Singh explained that M/s Gupta Wine Place belonged to Shri Mange Ram and was L-l liquor vend. On p. 26 of document D-9 an entry of Rs. 10 lakhs as cash received from Jind shop was found recorded. Shri Manohar Singh in whose handwriting the entry was made, stated that Shri Mange Ram personally brought cash received from Jind vends and at his instance the entry was made. Similarly entries were found in the seized document in respect of cash received from Bawani Khera vends. These entries showed that cash was being collected from Jind & Bawani Khera vends also. In his cross-examination Shri Manohar Singh stood by this statement that he had made entries with respect to cash receipts from those places at the behest of the assessee. According to the learned AO there appeared to be no other reasons for Shri Manohar Singh to have made entries with respect to cash received from Jind, Bawani Khera, L-l vend at Hansi, etc. During cross-examination Shri Manohar Singh specifically confirmed that money receipts from Jind & Bawani Khera did not pertain to sales Made at Gupta Wine Place, Hansi to those places but represented the cash received from the business of retail sales of the vends there. Shri Manohar Singh pointed out that cash received on account of sales of Gupta Wine Place was being separately mentioned as "L-l Sale ke Jama".

He further stated that he did not receive daily sale reports from Jind, Bawani Khera or L-l Hansi. He only received cash in respect of sales at those places.

11. The learned AO found that debit entries in the summary sheets showed expenses of the vends, other outgoings like loans and advances, personal expenses of the assessee and household expenses of the assessee. The fact that even the personal expenses and household expenses were debited showed that the assessee was singular owner of the liquor business. The learned AO found that all the summary sheets were duly verified and the noting "Check Kiya Gaya" was written at the bottom of each summary sheet in the handwriting of the assessee himself. This fact was confirmed by Shri Manohar Singh in his statement dt. 19th Dec., 1996 and Shri Pushkar Agarwal in his statement dt. 4th Feb., 1997. This indicated that all the sales made at various vends were recorded by the salesmen who handed over the daily reports and cash to Shri Manohar Singh who prepared summary sheets of cash, sales, stock, expenses and outgoings. The assessee thereafter was checking these summary sheets to control his business. The learned AO further found that all the expenditure bills relating to the liquor business were passed and countersigned by the assessee. Every single bill relating to the business bore the signature of the assessee. This fact had been corroborated by the statement of Shri Manohar Singh, cashier and Shri Pushkar Agarwal, manager of L-l vend Hansi. The assessee was confronted with these facts. In his reply the assessee stated that he had counter-signed some papers at the instance of Shri Satpal, partner.

However, the assessee did not raise these issues during cross-examination of Shri Manohar Singh. On the other hand, Shri Satpal in his deposition clarified that the assessee was the owner of the business and he was only an employee. Moreover during the course of search Shri Mange Ram had stated that only duty he had been assigned was obtaining liquor from distilleries. The fact that he completely omitted to mention that he was signing bills indicated that the subsequent explanation was an afterthought. It was quite surprising that none of the bills were bearing signatures of Shri Satpal except some daily sale reports. It was also unlikely that a petty employee would be passing and counter-signing all the bills relating to the business.

12. The learned AO found that summary sheets on documents D-l to D-12 indicated that there was a system of centralized purchase. On p. 26 of documents D-10, expenditure on account of purchase of liquor for vends at Hansi and Bawani Khera from the distillery of Yamuna Nagar was debited. It showed purchases of Rs. 3,68,850 on account of Hansi and Rs. 51,000 on account of Bawani Khera from Haryana Distillery, Yamuna Nagar. At the bottom the assessee wrote "Check Kiya Gaya". A more detailed working with respect of this purchase was made on p. 1 of documents D-10. The entries on that page showed that 8 trucks comprising of 600 cases of country liquor each were purchased at the rate of Rs. 51,000 per truck for Hansi and Bawani Khera and after including other expenses including labour expenses for loading, etc., the total cost worked out to Rs. 4,24,000. Shri Krishan Lal had already been paid a sum of Rs. 3,50,000 and thereafter he was paid another sum of Rs. 6,24,000 representing Rs. 74,000 on earlier account and Rs. 5,50,000 lump sum advance. Shri Manohar Singh, cashier who wrote p. 26 of documents 10 explained that Krishan Lal was making purchases and supplying goods to M/s Mittal & Co. Hansi; Shankar Lal & Co., Bawani Khera, Tosham & Gupta Wine Place L-l Hansi. Page 1 of documents D-10 showed that 8 trucks of liquor were purchased from Yamuna Nagar on 25th July, 1996 out of which one truck was sent to Bawani Khera. Cash for the entire purchase was paid from Barsi Gate vend by Shri Manohar Singh. These facts were confronted but the assessee did not question Shri Manohar Singh in regard to these facts. These summary sheets, etc.

showed that even the expenditure on L-l at Gupta Wine Place were being made from common pool of funds arranged at Barsi Gate vend of M/s Mittal & Co., Hansi. These papers established that the assessee was the owner of all those vends for which accounts were maintained at Barsi Gate. This fact was also proved from centralized purchases made from Haryana Distillery, Yamuna Nagar.

13. The learned AO further found that day-to-day expenses of various vends were also being made on centralized basis. Page 32 of documents D-12 mentioned expenses of L-2, L-14A and L-l vends. Such like entries were appearing at numerous places. During the course of search cash of Rs. 8,57,490 was found from the residence of Shri Manohar Singh. Out of this cash only Rs. 22,000 was found from the children's bedroom in the purse of Shri Manohar Singh's wife. Remaining cash of Rs. 8,35,490 was found from other bedrooms in 10-15 bundles tied in small slips. The slips bore name of the liquor vend, date and details of currency notes and total. This cash according to Shri Manohar Singh belonged to liquor business of M/s Mittal & Co., Hansi. The slips contained total cash receipts from several vends. The learned AO found that sum of Rs. 75,000 in the slip dt. 26th June, 1996 consisted of cash of Barsi Gate, as was clear from narration on top "English wine". Other entries related to the cash brought to Barsi Gate by employees from other retail vends of English wine. On verification it was found that the sum of Rs. 53,000, Rs. 12,500 and Rs. 8,500 were in respect of cash of G.T.Road L-2, Gosai Gate L-2 and New Anaaj Mandi L-2. Shri Manohar Singh explained that the cash was being brought to Barsi Gate by salesmen at night. From there he would bring cash to his residence at night, tally it with the slips and record on a paper. Next morning he would take all the cash to Barsi Gate along with details and the salesmen would bring daily sale report of the previous day. Shri Manohar Singh would tally the cash receipts at night with the daily sale reports and place a tick mark on the rough sheet of cash receipt brought by him. One such rough sheet seized from the residence of Shri Manohar Singh being p. 2 to document D-5 showed cash received from various locations. According to Shri Manohar Singh, after tallying the cash received on the rough sheet with the daily sale report he would prepare the summary sheet of every day next morning. The total cash as per these slips dt. 26th June, 1996 enumerated in para 25 of the impugned order added up to Rs. 6,49,000.

As regard the cash out of Rs. 8,35,490 found from the bedroom of Shri Manohar Singh, he stated that Rs. 1,86,490 was cash pertaining to preceding days which he had kept separately in bundles. The learned AO found that there was ample evidence to support the fact that cash of Rs. 8,35,000 belonged to the business. First, the cash was found in small bundles, secondly it was wrapped in slips on which details of currency notes and total number of currency notes was written along with aggregate cash amount, name of the vend and signature of the salesmen of the vend. Thirdly, along with cash the daily sale reports were found on which the amounts with respect to daily sale from each vend was written. This was further corroborated by the statement given by Shri Manohar Singh. Even on the date of search the same deposition was made by Shri Manohar Singh. It was thus clear that the cash belonged to M/s Mittal & Co., Hansi and other vends of which Shri Mange Ram, the assessee was the owner. According to Shri Manohar Singh, cash received from various salesmen was being utilized for making expenses of various liquor vends such as cost of purchases, excise duty, licence fee, other expenses of vends, etc. Balance cash was being accumulated at the residence of Shri Manohar Singh and given to the assessee or otherwise utilized as per the directions of the assessee and the entries were made in the summary sheets. This was evident from entries on p. 26 of documents D-9. First entry showed Rs. 60 lakhs given to the assessee in cash. Subsequently, another sum of Rs. 10 lakhs was given and entry was passed for Rs. 70 lakhs in the name of Haryana Tube, Hansi. This entry was corroborated by a coded entry of 70-HT Hansi' on p. 7 of notepad seized from residence of the assessee. This entry was further corroborated by the tape-recorded conversation in which the assessee admitted that the Haryana Tube was a coded entry. On p. 23 of documents D-I an entry appeared "Rs. 80,000 Seth M.R. Ji Ke Nam Babat Kapoor ko diye". This entry related to a sum of Rs. 80 lakhs given to Shri Kapoor at the direction of the assessee. There was another entry contained in p. 7 of document D-4 wherein it was found that cash of Rs. 6,20,000 was given at the instance of the assessee to Shri Ganga Jal, a liquor contractor of Rajasthan.

14. The learned AO asked the assessee to explain the various documents and the statement of Shri Manohar Singh as to the modus operandi of the business. The assessee was also asked to show cause as to why cash of Rs. 8,35,490 found and seized from the residence of Shri Manohar Singh not be treated as belonging to M/s Mittal & Co., Hansi of which he was considered to be the sole owner. The assessee was given copies of the documents as well as statements. In the cross-examination of Shri Manohar Singh by the assessee which lasted for two days, no rebuttal was made of these facts. The assessee maintained in his reply dt. 23rd May, 1997 that nowhere in the papers containing documents No. D-2 there appeared any signatures of the assessee. Alleged facts were that the cash was counted by the salesmen and handed over after wrapping them in slips to Shri Manohar Singh. Cash was found from the possession of Shri Manohar Singh. There was no evidence on record that cash was being given to the assessee by Shri Manohar Singh. It was the finding of the AO that cash belonged to M/s Mittal & Co. but there was no reason to treat the assessee as owner of that company. Liquor was the business controlled by the Excise Department and in none of the certificates of the Excise Department and partnership deeds, etc. the name of the assessee had figured anywhere. He was merely an employee of Mittal & Co. and there was no reason to treat cash of Rs. 8,35,490 as belonging to the assessee. The learned AO did not accept the claim of the assessee that he was merely an employee. There were numerous entries on debit side of the.summary sheets against which the assessee's name was mentioned e.g. "Rs. 60 lakhs MR Ji Ke Naam Nakad Le Gaye". Moreover, summary sheets were being checked by the assessee and correctness of those entries were certified by him "Check kiya gay a" in assessee's own handwriting which the assessee had himself admitted. The summary sheets were found during the course of search and onus squarely lay upon the assessee to contest the contents therein. The contention of Shri Manohar Singh that the cash was being handed over to the assessee after 3-4 days, proved that the assessee was the sole owner and all the persons shown as partners of M/s Mittal & Co. were benamidars. Shri Manohar Singh in his statement also stated that after 10-15 days the documents were being handed over to the assessee. The reason that daily sale reports and summary sheets were not found from the residence of Shri Manohar Singh beyond the period of 10-15 days was that eventually all the record was being handed over to the assessee. The assessee in turn passed on the papers to his Munim. Earlier assessee's nephew Subhash was working as Munim but for some reason he was thrown out.

Thereafter the assessee got one Munim at Jind whose name was not known to Shri Manohar Singh. Later on it was found that one Shri Subhash Verma, resident of Jind, was working as part-time Munim for the assessee.

15. During the course of search a large number of partnership deeds were found and seized from the residence of the assessee as enumerated by the learned AO in Annex. A-12 of the impugned order under Section 158BC. Relevant Excise record was also referred to. It was found that the persons shown as partners were working as salesmen in the liquor vends of the assessee. Persons like Ashok Kumar s/o Shri Prem Kumar, Pushkar s/o Sh. Kishanlal, Chandu Lal s/o Shri Ami Lal, Shankar Lal s/o Shri Kali Charan, Mahabir s/o Shri Daya Nand, Karam Vir, Ram Vilas s/o Shri Duli Chand and Karan Singh were found to be working as salesmen at the vends at Hansi on the date of search. The daily sales reports seized from the residence of Shri Manohar Singh were written by these people. Many of these salesmen were summoned and their statements on oath were recorded by the learned AO. The assessee was given opportunities to cross-examine those persons. In the sworn statements those persons deposed that they were petty salesmen at the vends of Hansi and that they had been employed by the assessee as salesmen.

According to the AO, the very fact that various persons working as salesmen in the vends of Hansi were shown to be partners in the liquor firms of Hansi, Jind, Bawani Khera, Tosham indicated that there was centralized planning.

15.1 According to the learned AO, during the course of search at the residence of the assessee in addition to the partnership deeds of several firms, handwritten documents comprising names and father's names of the persons 'made to appear as partners were found. The documents also contained the addresses of such people. At the residence of the assessee copies of licences issued by Excise authorities; copies of challans of licence fee; documents relating to the running of the business; correspondence with Excise and Police Departments, etc. were found. Documents also comprised of Court cases on behalf of various firms, announcement by the Collector, Excise terms and conditions for auctions, new prohibition policy of the State Government after election in 1996; copies of maps of various godowns and various vends, etc. were found. The learned AO has furnished details of those documents in Annex. 7 to the impugned order. According to him, possession of these documents of vital importance from the assessee's residence established that the assessee was the real owner of the business as it was he who was carrying out planning, supervision and control of the business.

16. Based on the documents and other material/evidence found and seized during the course of search proceedings at various premises; persons found to be working at various liquor vends; statements of salesmen and Shri Manohar Singh; explanations of the assessee; and cross-examination of various deponents by the assessee, the learned AO held that it led to the irresistible conclusion that control and management of business of the liquor firms/vends of Hansi, Jind, Bawani Khera, Tosham, Narnaund, etc. was in the hands of the assessee Shri Mange Ram who was the owner of the business. The assessee had interest in liquor business at some other places also like Rewari, Sikar, etc. The business of Hansi was controlled from Barsi Gate vend, near the bus stand, Hansi.

In 1996 there were eight legalized vends of IMFL (L-2) and Desi Liquor (L-14A) in Hansi Circle from which liquor was sold in retail. The wholesale godown (L-13) was located at Prem Nagar and Barsi Gate and for IMFL (L-l) at Gupta Wine Place, G.T. Road, Hansi. The persons who sat at Barsi Gate were Shri Manohar Singh, Cashier, Pushkar, salesmen Jaiveer and sometimes Jagdish Godara. Their statements were recorded on oath. That place was known as the Gaddi. Persons who managed L-l were Pushkar Aggarwal and Subhash Jindal. The assessee regularly came to Barsi Gate and checked the going on of the business and issued necessary instructions. He used to make surprise checks of the various vends. Regular checking was however done by Shri Subhash, s/o Jagan Nath, resident of Uklana who was Mange Ram's nephew. There were 2-3 salesmen at each vend. At the end of the day, the salesmen prepared a summary of sales bottlewise, calculation of cash, expenditure, opening stock and closing stock. Breakages and other happenings were also recorded on those printed proformas captioned as "Daily Sales Reports".

Around 9.30 to 10 p.m. total cash from various vends was carried to Barsi Gate and then handed over to Shri Manohar Singh who counted the sales and kept in safes at Barsi Gate. Cash was carried by Shri Manohar Singh to his residence in night wrapped in slips on which details of currency notes, name of vend and signature of salesmen were written.

Shri Manohar Singh clubbed the cash after separating the slips and wrote the details from such slips on a rough sheet. The salesmen had to go back to the vend and keep the vend open till 11 p.m. or so. Next morning by 9.30 to 10 a.m. they brought the remaining cash of previous night along with daily sales report with respect to sale of previous day to Shri Manohar Singh. Daily Sales Reports were written and signed by the salesmen. Shri Manohar Singh carried the daily sales report to his house next evening and tallied the cash written on daily sale reports with the rough sheet prepared on which the cash received on previous night was written. Then he consolidated the entries from all the reports on a single sheet where he wrote the daily cash arrival, daily expenses, daily opening stock, daily sold stock and closing stock of all the vends. Cash was brought by the assessee Shri Mange Ram from Jind, Bawani Khera, Tosham vends. Accordingly entries with respect to sales from L-l Hansi were also accounted for in summary sheets along with cash receipts. The cash collected in the business was utilized for making payment of licence fee, excise duty, purchase of liquor, cost of transport, salaries of salesmen and other daily expenses. Those dealings were done by Shri Manohar Singh after obtaining instructions from Shri Mange Ram. Larger and new type of expenses were controlled under the overall supervision of the assessee. All the bills were first countersigned by the assessee before payment was made by Shri Manohar Singh. After meeting the expenses the surplus cash was handed over by Shri Manohar Singh to Shri Mange Ram and on his instructions entries were made in the summary sheets. The daily sales report and summary sheets were regularly checked by the assessee. He inscribed the words "Check kiya gaya" in his own handwriting. After a few days these summary sheets were handed over by Shri Manohar Singh to the assessee.

Daily sales reports, summary sheets and cash relating to a couple of days was seized from the residence of Shri Manohar Singh. The remaining summary sheets and cash was not found on the date of search from Shri Manohar Singh as the same had already been handed over to the assessee.

All these facts were duly established in the form of seized documents, statement of Shri Manohar Singh, statements of salesmen who sat at Barsi Gate Gaddi, statements of salesmen working at English and country liquor vends.

17. According to the learned AO, the documents seized from the residence of Shri Manohar Singh indicated that number of entries pertained to personal expenses of the assessee e.g. expenditure on his personal car, expenditure for reconstruction of Sunder Hotel Building belonging to the assessee. There were several entries referred to in the seized documents as "Sethji", "M.R.", "Sethji Mange Ram", etc.

Significantly these documents did not contain reference to any other person. According to the learned AO, Sunder Hotel building was purchased by the assessee in the name of his wife Smt. Prem Lata and it was reconstructed in 1996. Details of expenses were recorded in various documents seized as Annexs. D-l to D-12. It was therefore, apparent that personal expenditure of the assessee was being incurred from the receipts of liquor business at various places. Certain bills relating to the construction of Sunder Hotel Building were also found and seized from the residence of Shri Manohar Singh. The learned AO has given illustration of such entries in paras 28.1 and 28.2 of the impugned order. The same was corroborated by the statement of Shri Manohar Singh recorded on 19th Dec., 1996. Shri Manohar Singh was cross-examined by the assessee but no question regarding this issue was put to him. The learned AO found from the seized documents that various household expenses were mixed up along with expenditure of the liquor business.

Payments made to some other persons as well as cash taken by the assessee himself in person were recorded in the documents including a sum of Rs. 60 lakhs collected by the assessee in cash. The learned AO recorded the statement of Shri Shanker, driver of NE car of the assessee bearing No. HR-9B-0004. He admitted to be in employ of the assessee as a driver at monthly pay of Rs. 1,500 and driving the assessee's car and sometimes the assessee's jeep. At the same time, the name of Shri Shanker appeared as a partner in the liquor firms of 12 and 114A vends in Bawani Khera/Tosham for 1996-97. The assessee was confronted with these facts. In his statement,the assessee stated that he was merely an employee and the expenditure with respect to Sunder Hotel was taken as a loan. The assessee stated that there were some contradictions in the statement of Shri Shanker Lal. The learned AO found it significant that so many expenses of personal nature of the assessee were found recorded in the accounts of liquor business whereas the name of no other person found such frequent mention. Even during the cross-examination Shri Shanker categorically stated that he was a driver working with the assessee. Shri Manohar Singh in his statement explained that personal expenses of Shri Mange Ram were borne from the liquor shop of Hansi because he was the owner. The learned AO therefore, concluded that personal expenses of the assessee such as car expenses, reconstruction of Sunder Hotel building and various other expenses of personal nature were drawn from the business receipts of liquor vends. The obvious conclusion on these facts and circumstances was that the assessee was the real and singular owner of the liquor business being run under the names of various firms.

18. From the seized documents the learned AO noted that the assessee was receiving information about daily stock position of various liquor vends and making his calculation regarding available stock and stock sold during the day and making calculations therefor, as to how much more stock needed to be purchased and what strategy was to be adopted for purchase/sale. The assessee made calculations to the minute details of conversion of bottles into cases and then into trucks. On p. 6 of document D-9 there was stock chart and working of stock done by the assessee himself in his own handwriting. On that date, the assessee calculated stock position truckwise and as per that calculation, on 14th June, 1996 stock with respect to Desi liquor vends was 7 truckloads were available, 9 truckloads were due to be received from Yamuna Nagar Distillery and 7 truckloads were to be received from Hissar. That much stock was available for sale up to 30th June, 1996.

The date of closure of liquor business being 30th June, 1996, the remaining 15 days were indicated by the assessee by mentioning figure 15. This calculation was vital because on expiry of contract the liquor vend could not sell unsold stock next day. There were other documents such as pp. 9, 10, 12, 13, 14, 19 of Annex. A-5 wherein the stock position had been worked out in relation to various dates in the handwriting of the assessee himself. The learned AO has given the example of p. 10 of Annex. A-5 in para 29 of the impugned order. The statement of Shri Manohar Singh was also to the effect that the assessee was receiving daily stock position reports and he himself was taking stock position of the business every now and then. This established that the assessee was engaged in the control and management of every aspect of the business.

19. On the date of search one Shri Ishwar Singh was found present at the premises of M/s Gupta Wine Place, Hansi. He stated that the premises belong to his elder brother Shri Sajjan Kumar, who had let it out to the assessee. Subsequently statement of Shri Sajjan Kumar was recorded on 2nd Aug., 1996. Shri Sajjan Kumar admitted that the building had been let out to the assessee who was operating the liquor business under the name and style of M/s Gupta Wine Place. He further stated that he was not aware of the constitution of the firm called Gupta Wine Place but the fact was that the assessee was the real owner of Gupta Wine Place. He formulated this belief on the basis that negotiations for rent were initiated and finalized by the assessee, key of the building was handed over to the assessee, any problem relating to rent of the premises was discussed by the assessee and rent was being paid from Barsi Gate vend at the direction of the assessee. Shri Sajjan Kumar stated that neither he nor any member of his family had ever seen any 6ther person in control of M/s Gupta Wine Place. As to the reason why rent was being paid from Barsi Gate liquor vend Shri Sajjan Kumar stated that the assessee was the owner of Barsi Gate liquor vend as well. Further on many occasions he had personally seen the assessee sitting and controlling the liquor business being carried out in the name and style of M/s Mittal & Co. at Barsi Gate vend. Smt.

Budhwanti w/o Shri Dalip Singh with whom the assessee had a fight as mentioned earlier, in her statement told that both the shops at Barsi Gate had been purchased by her in 1976 and 1984. Earlier her husband Shri Dalip Singh used to take contract of wine business along with Shri Mange Ram. Later on those shops were given on rent to the assessee on the oral understanding that reasonable rent would be paid to her but nothing was paid to her. According to Smt. Budhwanti, the assessee was continuing his possession and carrying out liquor business at those premises and not vacating in spite of repeated requests. The learned AO found that it was the assessee who was most actively involved in quarrel with Shri Dalip Singh and his wife Smt. Budhwanti. There was fight on 15th April, 1996 and the assessee lodged an FIR in which he admitted that he was the owner of liquor business in the name of M/s Mittal & Co. Statement of Shri Dalip s/o Shri Jagdev resident of Bhatol Jatan was also recorded on 13th Aug., 1996 whose small house was also taken on rent in that village by the assessee for doing liquor business. Shri Dalip stated that the house comprising three rooms had been given on rent to the assessee for the last six years. Initially rent of Rs. 200 per month was paid and in course of time it increased to Rs. 500 per month. He confirmed that negotiations for renting was done by the assessee who visited the premises frequently and who used the premises for selling liquor. The rent was being paid by the assessee when he visited the village or when Shri Dalip went to Barsi Gate vend to collect rent payment on the direction of the assessee.

Similarly, Shri Shiv Ram, resident of Gosai Gate, Bye Bass, Hansi stated on oath that he had let out two shops at Gosai Gate belonging to him at an annual rent of Rs. 8,000 to the assessee for the last few years. Rent arrangement was finalized by the assessee only. Likewise two shops situated at G.T. Road, Hansi given on rent to M/s Mittal & Co. belonged to Smt. Mohinder Kaur, mother of Sardar Manohar Singh, cashier of the assessee. It was stated that those premises were taken on rent by the assessee. In the statement recorded on 23rd July, 1996 the assessee was confronted with the various statements given by landlords of various properties from where liquor business was being conducted. The assessee denied having rented any shop and claimed that he was merely an employee. In the statement on oath the assessee stated that he had never signed any rent receipt. The learned AO noted that this statement of the assessee was contrary to FIR lodged by the assessee himself on 15th April, 1996. Furthermore, a rent receipt issued by Shri Nihal Singh in respect of the premises taken on rent at the rate of Rs. 650 per month was in the handwriting of the assessee, as certified by the handwriting expert. There was a document in the form of an agreement also in respect of premises taken on rent in the name of M/s Chander Bhan Om Prakash & Co., a liquor vend rent of Hansi which was signed by the assessee as Thekedar.

20. The learned AO found that the decisions to employ or fire a person in the lucrative position of liquor salesman was being taken by the assessee personally. Once a person was employed, he was given a diary under the signatures of the assessee fixing his monthly wages. The salesman used to get his wages from Barsi Gate vend by showing his diary to Manohar Singh, cashier. These facts were corroborated by the salesmen in their statements on oath. Some of them even produced diaries duly initialled by the assessee fixing their wages. The learned AO has in paras 31.1 and 31.2 given the illustration of the evidence/material gathered. He confronted the assessee with such diaries and called upon him to explain. In his reply the assessee stated that the figure of salaries noted in the said diaries were at the instance of respective owners. The learned AO did not accept this explanation. Some of those employees had been shown as partners in various firms. It was against commonsense that a person himself working as an employee would be employing his employees. In their respective statements those persons deposed that they were employees and not partners. They stated that the owner of the concern was Shri Mange Ram, the assessee and they were only the employees.

21. The learned AO found that the records maintained by the Excise Department was not sufficient material to decide upon the ownership of a liquor vend. The purpose of the Excise Department was to auction various liquor vends at the highest bid and thus collect maximum revenue for the State. Once that purpose was achieved, Excise Department was not widely concerned with such details as constitution of firm, etc. in whose name bids were made. Excise Department did not, therefore, carry out adequate enquiries to ensure that no licences were obtained in benami names. These aspects were duly noted in the Memorandum of Finance Bill reported in (1988) 68 CTR (St) 95 : (1988) 170 ITR (St) 187. It was experience of the Department that association of persons specifically constituted to take auction contracts for sale of liquor were difficult to be tracked thereafter. Real persons took licence in benami names and floated front associations of persons for short period. Ex parte assessments made against such association of persons did not result into collection of the taxes due to the public exchequer. In such a state of affairs the defence of the assessee entirely based on Excise Department's records was not of much consequence. In that respect the learned AO recorded statement of Shri R.K. Daggar, who was posted as ETO at Hissar from May, 1994 to June, 1996. He stated that he was in charge of the whole of the Hissar District. In Hissar District there were six Excise Circles and each one of them was under an Excise Inspector. He stated that he was present at the time of auction at Hissar for financial years 1995-96 and 1996-97 held in March, 1996 and March, 1997 respectively and that he personally saw Shri Mange Ram call the bids on behalf of those firms who ultimately became the successful bidder. This statement was recorded in the presence of the assessee who was allowed opportunity to cross-examine Shri Daggar. In cross-examination Shri Daggar specifically stated that though the successful bids were recorded in the name of M/s Chander Bhan Om Prakash and M/s Mittal & Co., it was Shri Mange Ram who was the successful bidder. According to the learned AO evidence under oath of the Excise Officer based on eyewitness account was direct evidence and could not be refuted for the reason only that the witness had no documentary proof of his statement. The evidence of Shri Daggar was corroborated by Shri Anil Sharma, Excise Inspector Hansi Circle and Shri Om Prakash dealing Assistant of ETO at Hissar. In his solemn affirmation Shri Anil Sharma stated that he was posted in Hansi Circle from August, 1994 to July, 1996 and his duty was checking of shops, stock and registers kept there and the purity of liquor and the legality of the vends. Shri Anil Sharma also stated that for the periods 1995-96 and 1996-97 Shri Mange Ram was successful bidder in the name of M/s Chander Bhan Om Prakash & M/s Mittal & Co. He stated that under the procedure followed by the Excise Department it was possible for a successful bidder like Shri Mange Ram to take contracts in names such as M/s Chander Bhan Om Prakash and M/s Mittal & Co. Shri Anil Sharma based on his eye-witness account of auctions in March, 1995 and March, 1996 stated that for those two firms bids had been made by Shri Mange Ram. He stated that March, 1995 auction was held in Panchayat Bhawan, Hissar and in March, 1996 it was held in Mini Secretariat, Hissar. Shri Om Prakash also stated that he was present during both the auctions and had personally seen Shri Mange Ram to make bids in benami names. He further stated that the money was deposited by Shri Mange Ram and it was he who used to settle disputes with the Excise Department in respect of penalty, interest etc. in relation to the liquor contract.

22. The AO wrote a letter to the DETC Hissar. In reply DETC Hissar vide his letter No. 2696/CC-I, dt. 14th Aug., 1996 replied that Shri Mange Ram was the main bidder in respect of M/s Mittal & Co., Hissar. Shri Mange Ram used to visit the excise branch and submit documents in respect of liquor licence fee on behalf of M/s Mittal & Co.

23. The learned AO examined surety bonds (M-75 form) to be deposited by the successful bidder in the matter of surety of the partner on Rs. 50 affidavit. For 1995-96 a surety bond of Rs. 1 crore was given by one Shri Anil Kumar, son of Shri Chhabil Dass, resident of Rajli and Shri Subhash Chander, s/o Shri Jagan Nath r/o Uklana. Both persons were close relatives of Shri Mange Ram and assisting him in his business.

Shri Anil Kumar was assessee's brother-in-law. The assessee had purchased land at Yeti Nagar, Hansi, in the names of his three brothers-in-law. For this purpose the learned AO referred to the statement of Smt. Prem Lata, wife of the assessee. Shri Subhash Chander was the. nephew of the assessee and he was actively involved in the business of the assessee as a Munim and used to maintain his books of account. He was also in-charge of checking the various liquor vends.

Lot of documents seized from the residence of the assessee were in the handwriting of Shri Subhash Chander. The assessee had purchased plot at Yeti Nagar in the name of Shri Subhash Chander and shown him as partner in liquor concerns such as Mange Ram & Co., Hansi 1992-93 and M/s Ved Prakash Darshan Singh & Co. 1996-97. Many of the applications written to Excise Department were also written by Shri Subhash.

24.The learned AO held that documentation at the end of the Excise Department was not adequate to determine the ownership of various liquor contracts as it was possible to operate them in front names. The persons named as partners in the documents of Excise Department were found to be working as salesmen in various liquor vends. Shri R.K.Daggar, ETO (Excise) at the relevant time for Hissar District stated in his statement that at the time of grant of licence only peripheral appraisal was made for verification and that it was widely prevalent practice for auction licences to be obtained in the names of firms by the real owners. The learned AO noted that Shri R.K. Daggar being a Government Officer of the Excise Department could not be more categorical beyond a point. Shri Anil Sharma in his statement stated that verification in relation to the financial capacity of the partners of the firms in whose names the bids were made was based mainly on the reputation of Shri Mange Ram who was an old wine contractor and had seldom defaulted on Excise Duty or licence fee. On that basis reporting of identity and financial capacity was made on good faith and in the interest of Government revenue. The learned AO found that the partners of the firms who obtained the contract in auction were not men of means and mostly employees of the assessee. As an illustration the bid statement of M/s Shankar Lal & Co. Bawanikhera/Tosham for 1996-97.showed that the licence fee of the firm was Rs. 4 crores. The photographs of following persons were attached to the bid statements: The learned AO recorded the statements of the persons above-named and also afforded the assessee opportunity to cross-examine them. All of them stated that they had gone with Subhash Munim who got their photographs clicked stating that the purpose was to ensure security of their employment. According to the learned AO, it could be said with utmost certainty that all those persons were not wine contractors but only petty salesmen. After the closure of business, they were hard pressed for their daily bread. Shri Shankar Lal was a driver by profession and used to drive the assessee's NE Car HR-93-0004. After he came to know the fact that he was shown as a partner in a liquor concern, he left the employment. He was earlier employed as deriver with M/s Jamna Dass Chhabil Dass, Hansi. Thereafter he was unemployed.

The Income-tax Inspector visited his house and found Shri Shankar Lal living in misery. Shri Ashok Kumar too was unemployed at the time of enquiry. The conditions of his house and family were pathetic. It was really very sad to learn that he was shown as a partner in a liquor concern that was auctioned at a bid of Rs. 4 crores. Income-tax Inspector visited his residence also and found him living in misery.

Shri Pushkar was Arora by cast and working as daily wager with M/s Manchan Medical Hall in Hansi. Income-tax Inspector visited his premises also and likewise found him living in misery. The learned AO found that as in the case of M/s Shankar Lal & Co., Bawani Khera/Tosham liquor vends, similar position obtained in respect of other firms as enumerated in para 43 of the impugned order. The learned AO went through the excise records of those eight firms as well and made efforts to trace partners of the liquor concerns. Enquiry letters issued were returned back with postal remarks "Non existing" or "Not known" or "Incomplete address" or "Refused to receive", etc. Majority of addresses were of Village Dhanauri or Yeti Nagar, Hansi. The assessee was originally inhabitant of Village Dhanauri and thereafter residing in a house constructed by him at Yeti Nagar. Income-tax Inspector was sent to verify the existence of various partners but only few persons mentioned in the partnership deed could be found. On going through the partnership deeds seized from the residence of the assessee the learned AO found that 16 partners were having addresses of Yeti Nagar, Hansi and 16 partners were shown to be from village Dhanauri.

Income-tax Inspector made several trips to Hansi and Dhanauri and conducted elaborate enquiries but could not trace even a single person.

Some of the addresses like 817, 832, 837 Yeti Nagar were only vacant plots. The letters sent through postal authorities also were received back unserved. Thereupon the learned AO contacted Tehsildar, Hissar and found that none of those persons figured in local voters list.

According to the learned AO on those facts and circumstances two questions came to his mind i.e. (1) Why false addresses were given and (2) why only Yeti Nagar and Hansi. The learned AO found that false addresses were given so that the alleged partners would not be traced.

The so-called partners were finally traced but at different addresses.

Their statements were recorded on oath. They were mostly petty salesmen or employees in the liquor shops at Hansi. Some of them worked as fruit sellers in front of the liquor vends. They were not aware of the fact that they had signed a partnership deed and what were its implications.

Some of them said that they had signed at the behest of Shri Mange Ram Mittal who was their employer. Others stated that they were illiterate and Mange Ram Mittal tricked them in signing the deeds. The assessee was given an opportunity to cross-examine those persons. On such facts it was pertinent to note that the partnership deeds were found from 835/14, Yeti Nagar, Hansi, residence of the assessee. The learned AO held that from the examination of a large number of persons falling in the category of salesmen/partners and their cross-examination by the assessee it emerged that all the persons categorically denied having any interest in liquor vends as partner/owner and all of them categorically stated that Shri Mange Ram was the real owner and they were only employees. They were employed by the assessee and salary was fixed by the assessee only. Salary was being paid by Shri Manohar Singh at the directions of the assessee for which diary was given to them and their salary account was written on that diary. Many of them produced the diary, which was impounded. All of them denied having made investment in liquor business. All of them stated that their signatures were obtained either by the assessee or by Shri Subhash Munim. They had signed because they did not want to loose their employment and many of them being illiterate did not understand what was written on the documents. Their photographs were taken on the pretext that the same were required for security of cash at vends. Later on those photographs were submitted to the Excise Department as of the partners of the successful bidder concerns. Enquiries made revealed that those persons were not men of means and were living in poverty. They could not have made huge investments required for liquor business. If that were so, they would not have been running tea stall or doing labour as daily wagers. It was, therefore, apparent that the assessee Shri M.R. Mittal was the real owner and the names of various persons were introduced to evade investigation and proper taxation. The learned AO found that there were several reasons for the assessee having adopted such a course. By way of this modus operandi the assessee successfully managed to avoid payment of income-tax. He also managed to escape the burden to explain huge investments made in liquor business. For financial year 1996-97 the assessee had to pay total revenue fee of Rs. 8.30 crores for Hansi Circle and Rs. 14.50 crores for Jind Circle out of which the assessee was required to make down payment of Rs. 1,38,30,000 for Hansi Circle and Rs. 2,40,00,000 upfront for Jind Circle. Thereafter, the assessee was required to make monthly payment of licence fee at the rate of Rs. 75,00,000 for Hansi Circle and Rs. 1,31,80,000 for Jind Circle. By taking the liquor contracts in the names of untraceable partners, the assessee avoided the burden to explain the source from which such huge investment was made and also the real income earned by the assessee in liquor business. There were frequent delays in payment of license fee. To avoid closure of liquor vends, stay orders were obtained from the Courts. In the case of Gupta & Co. Hansi for financial year 1993-94 the Excise Department was not able to recover their demand. The defaulter in the Excise record was not the assessee but one Shri Beli Ram who was a poor lorry driver. Subsequently he was found driving taxi in Hansi. He was summoned and his statement was recorded. Furthermore, the Excise Department and Police, did regular checking of vends to control illegal sale/adulteration as well as sale from unauthorized vends, etc. By taking license in benami names the assessee could protect himself from being proceeded against any criminal liability. The Excise Department therefore, followed the procedure of blacklisting the persons on grounds of defaults or unauthorized activity. A blacklisted person was barred from taking part in the auction of Excise Department. That did not matter much because next time a new person not blacklisted could be introduced as a partner/bidder to form a new concern.

25. The learned AO made enquiries as to financial capacity of the assessee. He found that the assessee had been taking liquor contracts since 1980. On the date of search he was found living in luxury in a big and well furnished house No. 835/14, Yeti Nagar, Hansi. There were six air-conditioners, colour televisions, VCR, table-tennis table, fridge, sofas, telephones, etc. The assessee was owning NE 118 car for his personal use for which purpose a driver was employed. The assessee's monthly phone bills varied from Rs. 8,000 to Rs. 10,000. The assessee was found spending considerable money on purchase of fruits from fruit vender Shri Ashok Kumar. The assessee had three children.

His son was studying in one of the most expensive boarding school in Ambala and his daughter was studying in an expensive girls school. The assessee was found to be having a number of immovable properties. From the papers seized from the residence of the assessee it appeared that the assessee had extended loans of Rs. 2 to 3 crores to various persons in the vicinity. In addition, the assessee had invested several crores in liquor business at Hansi, Jind, Rewari, Bawani Khera, Tosham, Sirsa, Rania and Sikar. All this was a far cry from the statement of the assessee that he was a petty employee in the liquor firm drawing a monthly salary of Rs. 2,500 only.

26. According to the learned AO statement of the assessee was recorded on different occasions at the time of search, during post search enquiries by ADI Hissar and during the course of assessment proceedings by the learned AO. In the preliminary statement given at the time of search the assessee claimed to be mere employee of M/s Mittal & Co. and his main duty was to bring liquor from the distilleries. He was earning a monthly salary of Rs. 2,500 and in addition he had a monthly income of Rs. 400 from retail grocery shop situated at Village Dhanauri. While the assessee gave the statement that his job was to bring liquor from distilleries, documents found during the course of search and subsequent enquiry revealed that he was in control and management of business at various places. Cash was brought by him from Jind & Bawani Khera vends. Ultimately all surplus cash was handed over to him. All the documents related to business such as partnership deeds, copies of challans, copies of return accounts, correspondence with Excise Department; Police Department, Court papers, newspaper cuttings were found and seized from his residence. All those documents could not have been found at the assessee's residence if he was merely a petty employee. A note pad marked A-5 seized from the residence comprised of licence fee calculations of various vends of Jind, Hansi and Bawani Khera. This document also comprised details of available stock at all the liquor vends of Hansi and the remaining days during which the entire stock was required to be sold. All these details were recorded in the handwriting of the assessee himself. The assessee stated that all that working was done at the behest of Satpal. Satpal on the other hand, denied having knowledge of those figures. In the summary sheets found there was entry of Rs. 60 lakhs cash handed over to the assessee : All the summary sheets were found to have been checked by the assessee and thereafter being inscribed "Check kiya gaya". In subsequent statement the assessee stated that he was inscribing "Check kiya gaya" on summary sheets as he was directed to check the accounts as per the directions of Satpal. In the initial stages of statement Shri Satpal claimed that he was a partner in business at Hansi and in the same breath he stated that he was an employee of M/s Mittal & Co.

Hansi at a monthly salary of Rs. 1,500. Satpal was in no position to state the details regarding the writing of books of account, names of other partners, amounts of security deposit/licence fee, quantum of sale, stock, rules and bye-laws of function of liquor vends, salary and employment of salesmen. Shri Satpal therefore in no manner could substantiate his initial statement that he was a partner in business at Hansi in financial year 1996-97. Significantly on the date of search, i.e., 28th June, 1996 Satpal was found working at G.T. Road, Hansi L-2 vend and in the statement he merely stated that he was an employee drawing a salary of Rs. 1,000 per month and in reply to a specific question he denied having any share in the liquor vend. While the assessee contended that he was having a grocery shop at Village Dhanauri, his wife Smt. Prem Lata deposed that she along with her husband had left the Village Dhanauri after 3-4 years of their marriage in 1979 for Rania where they lived for about 5-6 years. ' Thereafter they shifted to Hansi where they lived up to the date of search on 28th June, 1996. The brother of the assessee Shri Devi Dayal stated on oath on 28th June, 1996 that the assessee was not running any shop at Village Dhanauri. As to the education of the children, the assessee had in preliminary statement stated that all his three children were studying at S.D. School, Hansi and their monthly expenses were Rs. 1,000 each. Subsequently, it was found that his son Rajiv Mittal was a student of Chaman Vatika, Ambala and his annual expenses on account of fee was Rs. 60,000. The daughter Miss Renuka was found to be student of Vidya Devi Jindal School, Hissar and her expenses were Rs. 15,000 per annum. In the preliminary statement the assessee categorically denied having any immovable property in his own name or in the name of his family members. Later on, enquiries revealed that the assessee himself owned a residential Plot No. 1490 in Sector 46 Gurgaon. House No.835/14 Yeti Nagar, Hansi also belonged to him. His wife was found to be owner of house No. 1637, UE-II, Hissar and Sunder Hotel at Hansi as well as residential house at Rania. During the course of preliminary statement the assessee stated that he was residing in house No. 835/14, Yeti Nagar, Hansi for the last 2-3 months and prior to that he was residing in village. On enquiries it was found that the assessee was residing in that house for the last two years and before that the assessee was residing at other places in Hansi since 1988-89. The assessee stated that house No. 835/14 Yeti Nagar belonged to one Shri Baldev Singh of Rania who denied the ownership of the property. As to the air-conditioners found at the residence, the assessee stated that the same had been provided by the landlord Shri Baldev Singh. When Shri Baldev Singh denied the ownership of the house as well as having provided any air-conditioners, the assessee shifted his stand and stated that the air-conditioners were provided by Shri Satpal.

Incidentally Shri Satpal deposed that he had neither any car nor house or agricultural income and he used to stay in Theka in the night because he had no residential house to stay. In the preliminary statement Shri Mange Ram had stated that none of his family members had gone on foreign tour. During the course of search proceedings certain papers relating to foreign tour by his daughter were found and the assessee admitted that his daughter visited Singapore and Malaysia on her educational tour.

Regarding source of educational tour the assessee stated that these were made out of reward amount of Rs. 1,00,000 received from Shri Satpal. In his statement recorded on 30th July, 1996 Shri Satpal not only stated that he was an employee but also denied having given any salary/reward, award, etc., to the assessee. On denial by Shri Satpal, the assessee changed his stand in his statement dt. 10th June, 1997. He stated that the amount was given to him by Sri Chander Bhan who was his contractor. The assessee in his preliminary statement had stated that partnership deeds of M/s Ashok Kumar & Co., Sirsa, Chander Bhan Om Prakash & Co., Hansi and M/s Gupta & Co. found at his residence during search were left by Shri Ashok Kumar, Chander Bhan and Shri Gupta respectively whose full name and address were not known to him. But in his subsequent statement he changed his earlier version and stated that those documents had been left behind at his residence by Shri Satpal.

Shri Satpal denied any connection with those partnership deeds and thereafter the assessee changed his stand and in his reply dt. 13th Feb., 1997 stated that these documents were left behind by Shri Subhash Munim instead of Shri Satpal. The assessee had claimed that he was in receipt of salary of Rs. 2,500 per month from Shri Satpal. Shri Satpal however denied having paid any salary to the assessee. All the other witnesses examined during assessment proceedings confirmed that Shri Satpal was an employee of the assessee and it was the assessee who had employed Satpal as a salesman on G.T. Road L-2 shop at Hansi. When Smt.

Prem Lata was asked to explain the source of living of her husband, she stated that she did not know what business/profession her husband had been doing since marriage. Thus her reply was eyasive. All other persons examined during the course of assessment proceedings and various other proceedings had stated on oath that they had never seen the assessee serving as a salesman at any liquor vend. The learned AO, therefore, held that the assessee was giving contradictory and false statements from time to time for the reason that he was the real'owner of various liquor concerns.

27. Based on the material gathered the learned AO held the assessee carried on the business of IMFL and country liquor in the following manner: The learned AO noted that the assessee had not supplied any information with respect to the total investment and source in the concerns abovementioned, nor had he produced any books of account. The learned AO therefore, found that the income of the assessee for various assessment years was required to be estimated for which purpose the learned AO adopted the following criteria: The learned AO noted that various liquor contracts in Haryana were being sold by auction in the month of March every year for the following financial year. The successful bidder was required to deposit 1/6th of the licence fee as security. The learned AO, therefore, held that in the absence of any explanation the security deposit made by the assessee in advance in the initial year was required to be assessed as assessee's unexplained investment. Any accretion in the amount of advance security deposit in subsequent year(s) was required to be assessed as the assessee's unexplained investment of that year(s).

After security deposit the remaining licence fee was required to be deposited by the assessee in 11 equal monthly instalments by 20th day of every month. The learned AO held that the assessee must have paid those monthly instalments from out of cash generated on sale of liquor every month. He therefore, held that no addition on that count was called for. At the same time, the assessee must have made an initial investment in purchase of liquor from the distillery, excise duty thereon, transportation charges and so on. Liquor was a fast moving commodity. Still the assessee had to maintain at every vend stock required for a few days. This had to be done because sometimes the distillery could delay the supply. The learned AO therefore, held that initial investment in stock of liquor should be estimated by way of cost of liquor at assessee's vend over 10 days.

For that purpose the learned AO estimated purchase cost plus excise duty and transport charges. The learned AO calculated cost of country liquor on the basis of rates of country liquor collected for various years from the five distilleries of Haryana namely M/s Associated Distilleries Ltd., Hissar; M/s Haryana Distilleries Ltd., Yamunanagar; Panipat Co-operative Distilleries, Panipat; Ashoka Distilleries Hathin and Haryana Breweries Ltd. Sonipat. For calculating cost of IMFL and beer the learned AO collected information from M/s McDowell & Co. Ltd.; M/s Frost Falcon Distillery Ltd., Delhi; M/s Thomas & Batial (P) Ltd., New Delhi; M/s Herbert Sons Ltd., New Delhi; Mount Shivalik Dev Ltd. Bhan Karpur (Punjab); & Bills of M/s Hissar Wines.

In the absence of detailed accounts and information, the learned AO found that both the sales of the assessee and net profit thereof was required to be estimated. For that purpose the learned AO derived inputs from a comparable case of M/s Arjun Das Surender Singh & Co., Hansi. That case also was search and seizure case and assessment order had been made after scrutiny and that order had become final as no further appeal was filed by that assessee. The assessee of that case had disclosed sales at Rs. 1,20,32,000 and net profit at Rs. 2,17,840. After excluding the additions on account of unexplained investments and disallowances under Section 40A(3) the trading results were estimated at Rs. 5,30,000 yielding a net profit rate of 4.5 per cent. On that basis the learned AO held that the assessee's profit should be worked out at the rate of 5 per cent net profit on the estimated sales. Based on these parameters, the learned AO proceeded to determine the assessee's income from dealing in IMFL and country liquor for various contracts taken by the assessee in respective assessment years as enumerated by us in the earlier paras. The learned AO adopted actual quota lifted by the assessee as per excise record as the starting point. The AO has made fairly elaborate working of the assessee's undisclosed business income running from pp. 57 to 73 of the impugned order. As a result of those elaborate calculations the learned AO has assessed the assessee's undisclosed business income over various assessment years in the block assessment period in the following manner:Asst. yr. 1991-92Security deposit and other exspenses for M/s Gupta & Co.,Hansi made in March, 1991 - Rs. 80,95,000Asst. yr, 1992-93Initial investment in purchase of liquor M/s Gupta & Co.,Hansi (L-14) - Rs. 2,66,250Profit of Gupta & Co. Hansi (L-14) - Rs. 18,84,250Security deposit in March, 1992 for M/s Mange Ram & Co.,Hansi L-14 & other expenses - Rs. 26,89,600 The learned AO however, did not make separate addition of Rs. 26,89,600 as abovementioned having regard to the availability of funds to the tune of Rs. 80,95,000 brought forward from asst. yr.

1991-92 as mentioned above.Initial investment made by the assessee in purchase ofliquor for M/s Mange Ram & Co., Hansi - Rs. 2,10,920Profit of M/s Mange Ram & Co.

- Rs. 11,93,010Security deposit made by the assessee and relatedexpenses for M/s Gupta & Co., Hansi (L-2) and M/s Gupta& Co., Hansi (L-14) made in the month of March, 1993 - Rs. 72,48,000 Out of the above computation the learned AO did not make separate addition for the sum of Rs. 72,48,000 as the amount was less than the security deposit fund of Rs. 80,95,000 assessed for asst. yr.

1992-93.Investment in initial purchase of liquor vend Gupta & Co.,Hansi (L-14A) - Rs. 4,60,530Profit of above concern - Rs. 25,41,459Initial investment in purchase of liquor M/s Gupta & Co.,Hansi (L-2) - Rs. 2,41,070Profit of above concern - Rs. 47,00,875Security deposit made in March, 1994 for M/s Mittal & Co.,Hansi (L-14) - Rs. 66,34,000Security deposit made for M/s Mittal & Co., Hansi (L-2) - Rs. 17,80,000Licence Fee Gupta Wine Palace - Rs. 5,00,000Other expenses - Rs. 1,65,000 As the expenditure on security deposit in March, 1994 amounted to Rs. 90,79,000 which amount exceeded the addition of Rs. 80,95,000 made for asst. yr. 1993-94, the additional investment of Rs. 9,84,000 was assessed by the learned AO as undisclosed investment for asst. yr. 1994-95. Thus raising the fund invested in security deposits to Rs. 90,79,000 from Rs. 80,95,000.Initial investment in purchase of liquor Mittal & Co., Hansi(L-14) - Rs. 6,07,145Net profit of above concern - Rs. 30,91,612Initial investment in purchase of liquor Mittal & Co., Hansi(L-2) - Rs. 31,26,530Net profit of above concern - Rs. 61,61,760Initial investment in purchase of liquor Gupta Wine Palace,Hansi (L-1) - Rs. 1,20,44,056Profit of above concern - Rs. 7,25,143Security deposit in March, 1994 for M/s Chander Bhan OmPrakash & Co., Hansi (L-14) - Rs. 1,10,71,700Security deposit in March, 1995 for M/s Chander Bhan OmPrakash & Co. (L-2) - Rs. 20,57,900Other related expenses - Rs. 2,00,000Security deposit in March, 1995 of M/s Ashok Kumar & Co.,Sirsa (L-14) - Rs. 90,00,900Security deposit of M/s Ashok Kumar & Co., Sirsa (L-2) - Rs. 53,13,700Other connected expenses -Rs. 7,00,000 Thus the learned AO estimated investment in security deposit during the month of March, 1994 at Rs. 2,83,44,200. He reduced therefrom the brought forward assessed investment of Rs. 90,79,000 and accordingly made for asst. yr. 1995-96 addition of Rs. 1,92,65,200 only. The total undisclosed investment as of March, 1995 amounted to Rs. 2,83,44,200.Initial investment in purchase of liquor Chander Bhan OmPrakash & Co., Hansi (L-14) - Rs. 7,04,640Profit of above concern - Rs. 38,30,900Initial investment in purchase of liquor Chander Bhan OmPrakash & Co., Hansi (L-2) - Rs. 28,18,200Profit of above concern - Rs. 56,86,860Initial investment in purchase of liquor at Ashok Kumar &Co., Sirsa (L-14) - Rs. 10.21,186Profit of above concern - Rs. 45,48,385Initial investment in purchase of liquor at Ashok Kumar &Co., Sirsa (L-2) - Rs. 70,72,679Profit of above concern - Rs. 1,42,16,780Initial investment in purchase of liquor at Gupta WinePalace, Hansi - Rs. 1,39,63,614Profit of above concern - Rs. 8,40,316 The learned AO has made the following computation of unexplained investment of security deposit made by the assessee during March, 1996.Security deposit Mittal & Co., Hansi - Rs. 1,38,34,000Related expenses - Rs. 2,00,000Security deposit M/s Ved Prakash Darshan Singh & Co.,Jind - Rs. 2,41,67,000Related expenses - Rs. 2,00,000Security deposits M/s Shankar Lal & Co., BawaniKhera/Tosham - Rs. 66,83,000Related expenses - Rs. 2,00,000 ____________________ As the AO had already made additions to the tune of Rs. 2,83,44,200 in the earlier years, for asst. yr. 1996-97 the AO made an addition of Rs. 1,74,39,800 only. Thus total additions for unexplained investment and security deposit up to asst. yr. 1996-97 amounted to Rs. 4,57,84,000.Initial investment in purchase of liquor Mittal & Co., Hansi(L-14) - Rs. 7,13,250Initial investment in purchase of liquor Mittal & Co., Hansi(L-2) - Rs. 11,65,233Profit of above concern - Rs. 19,02,305Initial investment in purchase of liquor Ved PrakashDarshan Singh & Co., Jind (L-14) - Rs. 13,44,786Initial investment in purchase of liquor Ved PrakashDarshan Singh & Co., Jind (L-2) - Rs. 23,44,000Profit of above concern - Rs. 34,82,458Initial investment in purchase of liquor Shankar Lal & Co.,Bawani Khera (L-14) - Rs. 3,78,536Initial investment in purchase of liquor Shankar Lal & Co.,Bawani Khera (L-2) - Rs. 6,21,277Profit of above concern - Rs. 9,59,916Initial investment in purchase of liquor Gupta Wine Palace,Hansi (L-1) - Rs. 89,14,956Profit of above concern - Rs. 1,34,350 28. The learned AO found that the assessee had been making huge investments in immovable properties in benami names. In the statement recorded during the course of search, the assessee denied owning any immovable property in his name or in the name of his relatives.

However, in the tape-recorded conversation supposed to be "Out of record", the assessee admitted to be the owner of the properties worth Rs. 50 lakhs. In the statement recorded on oath on 10th June, 1997 in the presence of the assessee, Smt. Prem Lata, his wife denied knowledge about the purchase and ownership of any property. However, subsequent enquiry revealed otherwise.

At the time of search the assessee was found residing in House No.835/14, Yeti Nagar, Hansi. In the statement recorded during the course of search the assessee stated that the house belonged to Shri Baldev Singh, resident of House No. 118, Block-2, Sirsa and that he was a tenant paying a rent of Rs. 400 per month. Local enquiries revealed that no such Baldev Singh ever lived in any capacity in House No. 118 Block-2, Sirsa. That house belonfed to Shri Chaudhary Ram s/o Shri Varam Chand Kamboj who was an agriculturist. Shri Baldev Singh was ultimately found to be resident of Dhani Leharwali, Rania, District Sirsa. In the statement recorded under Section 131 on 15th July, 1996 Shri Baldev Singh denied having any immovable property other than agricultural lands and the residential house in the village Leharwali Dhani Rani. He categorically stated that he did not have any immovable property in Tehsil Hansi. He stated that he knew the assessee as a friend since 1978 but never had any business transaction with the assessee. Shri Baldev Singh flatly denied any ownership interest in House No. 835/14, Yeti Nagar, Hansi. The learned AO found that there was plenty of other evidence indicating that the assessee was the owner of the aforesaid house. Shri Badri Prasad who executed the job of carpenter in the above house in his statement recorded on 16th July, 1996 stated that at the instructions of the assessee, he carried out wood work at the rate of Rs. 16 per sq.ft. and the total amount of Rs. 38,000 was received by him from the liquor vend situated at Barsi Gate, Hansi on the instructions of the assessee. He further deposed that the work was supervised by the assessee who was the real owner of the property. Electricity connection of the House 835/14 Yeti Nagar was also in the name of Smt. Prem Lata, wife of the assessee. Stone fixed in front of the house bore the description "Mange Ram 835/14 Yeti Nagar". It was not a simple name plate but a permanent stone embedded in the property at the time of construction. Shri Surinder Kumar Vadhwa s/o Shri Shankar Lal r/o Hansi stated in his statement recorded on oath that he had prepared drawings in respect of residential house for the assessee who was a very renowned wine contractor. On a later date he submitted a copy of that drawing which was with respect to house in question, i.e., 835/14 Yeti Nagar. Shri Surinder Kumar Vadhwa stated that the map plan was prepared in 1993. Shri Surinder Kumar Vadhwa denied having known any Baldev Singh. Shri Surinder Kumar Vadhwa also admitted having prepared building plans for construction of a shop for the assessee located in old bus stand and also building plan of Sunder Hotel building. That was submitted to Municipal Corporation. He stated that the name of Shri S.R. Malik was put because he was approved architect. Shri S.R. Malik in his statement confirmed that he had not prepared the plan and only put his name. Shri Manohar Singh, cashier also in his statement recorded on 21st April, 1997 deposed that house No. 835/14, Yeti Nagar belonged to the assessee. When the assessee was asked as to why the house property should not be treated as his benami property, he simply stated that the house belonged to Shri Baldev Singh. The assessee was confronted with the statement of Shri Baldev Singh and statements of Shri Badri Prasad, Shri Subhash and various other material. The assessee however, merely reiterated that house belonged to Shri Baldev Singh as evidenced by the purchase deed and he was only a tenant. The assessee, however, did not furnish any documentary evidence to support this claim. Neither any purchase deed nor any rent agreement or rent receipt was produced by the assessee.

According to the assessee he was paying a rent of Rs. 400 per month.

The house was double storied, covered area 342 sq. meters, located in posh area and involved investment of Rs. 16 lakhs. It was impossible for such house being let out at a meagre rent of Rs. 400. The house was fitted with six ACs and those were also according to the assessee, covered by the rent of Rs. 400 per month. The learned AO referred the property to the Departmental Valuation Officer who estimated cost of construction at Rs. 15,91,613. The assessee was requested to furnish account of cost of construction but the assessee did not produce any particulars relating to cost of construction. The assessee also did not refute the findings in the valuation report relating to cost of construction. Based on the valuation report the learned AO assessed undisclosed investment in this house at Rs. 4,78,608 for asst. yr.

1994-95; Rs. 7,95,816 for asst. yr. 1995-96 and Rs. 3,97,908 for asst.

yr. 1996-97.

As already mentioned during the course of search the assessee and his wife Smt. Prem Lata denied possession/ownership of any immovable property. Enquiries made after search revealed house No. 1637-UE, Hissar was in the name of assessee's wife. The learned AO collected relevant documents from HUD A record and Tehsildar Hissar Office. The area of the house was 448 sq.yards and it was purchased on 24th July, 1991 from one Smt. Pushpa Devi w/o Shri Gyan Chand Goel. Registration was however made on 24th Feb., 1994 disclosing sale consideration at Rs. 3,75,000 on which stamp duty of Rs. 58,120 was paid. On reference to the Departmental Valuation Cell the cost of construction and cost of land was estimated at Rs. 15,27,078. The learned AO therefore, took the investment of the assessee at Rs. 15,27,000 + Rs. 58,125 Stamp Duty paid. The learned AO treated this as undisclosed income of the assessee for asst. yr. 1994-95 treating the assessee as the real owner of the house. The funds for purchase of this house could not have come from the assessee's wife but the assessee himself. Further, the learned AO relied upon the cash credits raised by the assessee to create availability of funds for purchase of the house by assessee's wife in the current account No. 7003 with Oriental Bank of Commerce, Hansi. As the learned AO disallowed the assessee's claims for cash credits and treated them as assessee's income from undisclosed sources, he reduced the undisclosed income to be further added on account of investment in House No. 1637-UE, Hissar by the sum of Rs. 3,55,000. He, therefore, made an addition of Rs. 12,30,125 only for the asst. yr. 1994-95.

According to the learned AO enquiries made after the search revealed the acquisition of the property abovenamed in the name of the assessee's wife. Evidence in that respect was found in the form of map plan, registration deed and affidavit made by the assessee's wife Smt.

Prem Lata-the documents collected from the Office of Municipal Committee. The consideration for registration was shown at Rs. 1,00,000 and stamp duty of Rs. 15,500 was paid as per deed dt. 13th Jan., 1995.

After purchase of the plot of land new building was constructed afresh.

The learned AO made reference to the Departmental Valuation Cell and the Valuation Officer estimated cost of construction at Rs. 6,46,175.

The learned AO therefore, treated investment of this property as unexplained investment of the assessee. He has assessed cost of construction at Rs. 6,46,175 as valued by the Departmental Valuation Cell and added thereto cost of land estimated at Rs. 2 lakhs on the basis of local enquiries and treated these amounts as undisclosed investment of the assessee for asst. yr. 1995-96.

Enquiry from Estate Officer HUDA, Gurgaon revealed that the plot above named was purchased in the name of the assessee himself for which the following payments were made by the assessee to HUDA: During the course of proceedings under Section 158BC the assessee could not explain source of this investment. The learned AO therefore, assessed a sum of Rs. 1,78,920 as undisclosed investment of the assessee for asst. yr. 1997-98.

The learned AO found that the assessee was known to be purchasing immovable properties also in benami names in the same manner as auction purchases of liquor vends. The assessee purchased a number of plots at Yeti Nagar in benami names. In para 70 of the impugned order under Section 158BC, the learned AO has mentioned particulars of those purchases relating to seven plots aggregating to 11,030 sq. yards in area for which aggregate consideration of Rs. 16,54,500 was disclosed in the sale deeds. In order to support the finding that those plots were purchased by the assessee in benami names, the learned AO found that plot at serial Nos. 1 to 3 and serial No. 7 had been purchased in the names of brothers-in-law of the assessee. Plot at serial No. 4 was purchased in the name of a person of Dhanauri-the ancestral village of the assessee. Persons named in the sale-deeds, for plot at serial Nos.

5 and 6 could not be traced. It was strange that all the seven plots had been purchased on a single day i.e. 16th Jan., 1990. It was difficult to accept that all the 7 purchasers decided to purchase plot at Yeti Nagar on the same day and same rate. The learned AO further found that most of the registration deeds were witnessed by Shri Krishan Kumar Namberdar. Shri Krishan Kumar stated that he met one Shri Vijay Kumar on behalf of the alleged buyers whom he had not seen in person. According to the AO it was strange that these alleged purchasers did not attend the office of the Tehsildar for getting the deeds registered. Moreover, they themselves did not sign the conveyance deeds. Statement of Shri Vijay Kumar was recorded under Section 131. He was asked to identify the actual purchasers with their complete addresses, Shri Vijay Kumar stated that a property dealer named as Ram Dhari asked him to sign those documents on 16th Jan., 1990 and he was not aware about the purchasers. The learned AO found that same Shri Ram Dhari had purchased the stamp paper for registration of House No.835/14, Yeti Nagar, Hansi. When the assessee purchased the property known as Sunder Hotel in the name of his wife Smt. Prem Lata, the conveyance deed was witnessed by Shri Ram Dhari. Shri Vijay Kumar in his statement stated that Shri Ram Dhari was employed with the assessee. Subsequently, the statement of Shri Ram Dhari was also recorded on oath. He could not tell names of actual owners of those plots. The names of the purchasers could not be found in the voters list. Shri Ram Dhari stated that Shri Satish and Shri Subhash, brothers-in-law, of the assessee approached him for the aforesaid conveyance deeds. The learned AO recollected that in the statement given Shri Devinder Singh had also stated that he had been approached by Shri Ram Dhari for preparing drawing for 835/14 Yeti Nagar.

Moreover, Shri Manohar Singh's statement was recorded on 21st April, 1997 whereby he had stated that certain earth work was carried out in those plots of land for which payment was made from liquor vends on instructions of the assessee. Based on all this material the learned AO held that these 7 plots of land had been purchased by the assessee himself in benami names. Thereafter local enquiries were made to find out the market rates of land in Yeti Nagar at the relevant point of time because it was a common practice to make registration deeds at suppressed sale value. Based on such enquiries the learned AO estimated the total investment in these plots from undisclosed sources at Rs. 17,54,500 and assessed the same as undisclosed income of the assessee for asst. yr. 1990-91.

According to the AO enquiries carried out revealed that the above named property was purchased in the name of assessee's wife on 29th Nov., 1988 for Rs. 18,000 and stamp duty of Rs. 2,250 was paid. After purchase of the property the old structure was demolished and a new construction was carried out. On reference to the Valuation Cell cost of construction was worked out at Rs. 4,35,983. The assessee could not explain this investment beyond stating that the property belonged to his wife. Based on the material gathered the learned AO assessed unexplained investment of Rs. 20,250 and Rs. 4,35,983 for asst. yrs.

1989-90 to 1993-94.

29. After having made assessment of unexplained investment in the house properties as enumerated in the foregoing paras the learned AO also proceeded to assess income chargeable to tax under the head "Income from house property". He made additions in this behalf for asst. yrs.

1992-93 to 1997-98 in relation to house No. 1634/UE-II Hissar and residential house at Rania.

30. From the accounts attached by the assessee along with the return filed under Section 158BC the learned AO found that the assessee had disclosed following amounts for household expenses:Asst. yr.

Withdrawals Narration shown1987-88 6,500 House-hold expenses1988-89 6,800 Withdrawals1990-91 8,500 This includes a sum of Rs. 5,400 as school fees paid.1996-97 33,000 A sum of Rs. 1,09,250 & 67,000 has been shown on1997-98 10,000 The payment against the above schools have been 31. During the course of proceedings under Section 158BC the learned AO asked the assessee to furnish the details of household expenses as well as other expenses made by him during the block period. A specific questionnaire was addressed to him under letter dt. 5th Dec., 1996. The assessee was asked to furnish the details by 10th Jan., 1997 and when that was not done on 24th Jan., 1997 it was again impressed upon the assessee to furnish the details. However, no such details were filed.

The learned AO held that in the absence of particulars being filed by the assessee, his household expenses and other expenses were required to be estimated keeping in view the social and financial status of the assessee; schools/colleges where the children were studying; household and luxury items found at the residence of the assessee; and other factors including certain documents found and seized during the course of search proceedings. The learned AO noted that the assessee was a big wine contractor of Hansi having liquor contracts in Haryana State and some places at Rajasthan. He was the owner of several immovable properties. At the time of search on his residence 835/14, Yeti Nagar, Hansi, 6 ACs, one sofa set, one fridge, one videocon colour T.V., one Akai VCP, one table-tennis table, one gun, one revolver and one Premier NE 118 were found. Shri Rajiv Mittal, son of the assessee was studying at Ghaman Vatika School, Ambala City where annual fee was Rs. 50,000 and caution money was Rs. 5,570. Apart from annual fee there were other expenses such as mess expenses, dresses, books, pocket money, travel expenses, etc. Rekha Mittal, daughter of the assessee was studying in Vidya Devi Jindal School, Hissar. Her school fee paid by the assessee was Rs. 55,900 besides other expenses. The learned AO found that bimonthly bills of residential telephones of the assessee ranged between Rs. 8,000 to Rs. 10,000. The learned AO separately estimated assessment year-wise education expenses, telephone expenses, expenditure on purchase of fruits, vehicle expenses, electricity expenses and other expenses. On that basis as per the details given in paras 71 to 73 of the impugned order under Section 158BC, the learned AO estimated the assessee's unexplained household expenses at the following amounts:Asst. yr.

Amount Asst. yr.

Amount1987-88 Rs. 63,000 1993-94 Rs. 1,90,0001988-89 Rs. 82,500 1994-95 Rs. 2,13,0001989-90 Rs. 98,000 1995-96 Rs. 2,41,0001990-91 Rs. 1,44,000 1996-97 Rs. 4,01,0001991-92 Rs. 1,32,000 1997-98 Rs. 1,54,0001992-93 Rs. 1,55,000 32. As already mentioned during the course of search proceedings the assessee was found owner of various assets such as ACs, table-tennis table, fire arms, fridge, colour TV, VCP, etc. for which the learned AO assessed a sum of Rs. 1,50,000 as assessee's unexplained investment. In respect of premier NE 118, that was found registered in the name of one Shri Hardwari Lal, statement of Shri Shankar Lal, driver established that the car was in exclusive possession and control of the assessee and was being used by the assessee and his family. On vehicle running, repair and maintenance, expenses were being incurred by the assessee.

The summary sheets found in documents D-1 to D-12 seized from residence of Shri Manohar Singh also indicated that expenditure on this car was being met from the liquor vends belonging to the assessee. Besides NE car the assessee was found to be the owner of one truck HR-39-1544 for business purposes. That vehicle was registered in the name of Shri Subhash Munim who was nephew of the assessee and his accountant. Shri Subhash Munim was also shown as a partner in some of the benami concerns as well as owner of some benami plots in Yeti Nagar, Hansi.

Shri Himmat Singh employed as a driver of the vehicle aforesaid, stated that he was assessee's employee for which purpose a salary diary had been issued to him under the signature of the assessee. That diary in original was produced and impounded by the AO. Shri Himmat Singh stated that he was assigned the job of carrying liquor stock to the various vends in Hansi, Sirsa, Loharu and also to bring cash from Sirsa.

Statement of another driver Shri Beli Ram employed by the assessee for driving NE car also confirmed that Tata 609 belonged to the assessee.

Based on this material, the learned AO estimated an undisclosed investment of Rs. 5 lakhs in this truck for asst. yr. 1996-97. For Premier 118 NE he made an addition of Rs. 3,50,000 as unexplained investment for asst. yr. 1996-97. Cash credits 33. The assessee submitted copies of balance sheets for different years along with return under Section 158BC. In such balance sheets the assessee claimed to have taken cash loans from various parties amounting to Rs. 3,23,500 during financial year 1986-87, Rs. 2 lakhs during financial year 1991-92 and Rs. 2,22,000 during financial year 1996-97. The learned AO asked the assessee to prove genuineness of these cash credits and furnish documentary evidence in regard thereto.

The assessee sought adjournment on a number of occasions and finally on 21st April, 1997 the assessee stated that cash credits for the financial year 1986-87 being very old, it was difficult to get necessary evidence. The learned AO held that the burden to satisfactorily explain the cash credit rested upon the assessee. It was also settled legal position that ingredients of the satisfactory explanation were identity of the cash creditor, creditworthiness of the creditor and genuineness of the transaction. The assessee failed to discharge his burden to prove that lay upon him under the provisions of Section 68. Besides, there were some further facts worthy of notice.

Cash credits in the balance sheet for the period 1986-87 were shown to explain the investment of Rs. 3,88,500 with M/s Mange Ram & Co., Rania.

The cash credits of Rs. 2 lakhs were introduced in the financial year 1991-92 so as to explain the source of the sum of Rs. 3,55,000 advanced by the assessee to his wife Smt. Prem Lata for purchase of house No.1637-DE-II Hissar for Rs. 3,75,000. This amount was paid through the assessee's bank account No. 7003 with Oriental Bank of Commerce, Hansi that was opened and operated for the sole purpose of creating a garb of genuineness to the purchase of property by the assessee's wife. Fresh sundry creditors of Rs. 2,22,000 were shown for financial year 1995- 96. The names of persons constituting "Sundry creditors" were not given. During that year the assessee paid school fee for children, bore cost of Gurgaon plot and made other expenses. The learned AO noticed that though those credits continued in the accounts of the assessee year after year, no interest was paid. Based on these facts the learned AO held that addition on account of unexplained cash credits was called for. He, therefore, made an addition of Rs. 3,23,500 for asst. yr.

1987-88; of Rs. 2 lakhs for asst. yr. 1992-93 and Rs. 2,20,000 for asst. yr. 1996-97.

34. The learned AO found that for financial year 1994-95 the assessee had shown gifts of Rs. 30,000 from Shri Satish Kumar and Rs. 30,000 from Shri Subhash Chander. The learned AO wrote a letter to the assessee to produce these persons to establish the genuineness of the gifts. The assesee was not only not able to produce those persons, he could not even explain his relationship with the alleged donors and the occasion on which the gifts were allegedly given to the assessee. Even the details like date of gift, mode of gift could not be furnished. In the absence of satisfactory explanation, the learned AO assessed a sum of Rs. 60,000 as representing assessee's income for asst. yr. 1995-96.

35. During the course of search cash Rs. 1,10,640 was found at 835/14, Yeti Nagar, Hansi out of which Rs. 1,05,000 was seized. Subsequently, the assessee stated that the cash was accumulated as earnings from his grocery shop in Village Dhanori, Jind. The assessee stated that his monthly income from shop was Rs. 300 to Rs. 400 per month and the cash was accumulated over the period of 15 to 20 years. The cash was found in bundles in denomination of Rs. 100 and according to the learned AO the same did not appear to be accumulated of two decades. On the same day the search party also recorded the statement of Shri Devi Dayal, brother of the assessee wherein he stated that he was residing in the Village Dhanori for several years and his brother Shri Mange Ram was not running any grocery shop in the village. The learned AO held that as the assessee was residing in Hansi for the last 7 to 8 years, it was unlikely that he would be running any shop in the Village Dhanori, Jind. He therefore, treated cash of Rs. 1,10,640 found at his residence as assessee's undisclosed income.

36. During the course of search cash Rs. 8,57,490 was found at the residential premises of Shri Manohar Singh out of which Rs. 8,35,490 was seized. Shri Manohar Singh stated that the cash belonged to liquor business of the assessee and represented sale proceeds of liquor for the month of June. In support of this contention he relied on daily sale reports of various liquor vends which were found along with cash.

Shri Manohar Singh stated that he was cashier of the assessee. That statement of Shri Manohar Singh was proved on the basis of various documentary evidence. Since the learned AO separately assessed the assessee's initial investment in liquor business and profits of liquor business for various assessment years falling within the block period he held that no separate addition was called for for the cash found at the residence of Shri Manohar Singh.

37. During the course of search it was found that with various excise authorities security deposits aggregating to Rs. 22,25,906 were lying deposited in the name of various liquor firms found to be benami concerns of the assessee. Those amounts were attached by the AO under Section 281B to protect the interest of revenue and according to the AO they represented unexplained investment of the assessee. However, the learned AO did not make separate addition of those amounts in view of the business income and unexplained investment in security deposits for various financial years having already been assessed.

38. The learned AO has made reference to pp. 4 and 6 of documents A-4 and p. 7 of document A-5 in para 81 of the impugned order. Pages 4 and 6 of documents A-4 were seized from the pocket of Shri Mange Ram himself during the course of search. It contained record of receipt and payment of cash for financial years 1995-96 and 1996-97. The account was in the name of the assessee and English translation thereof is as follows:12,00,000 1-4-1995 5,00,000 23-9-199510,00,000 9-4-1995 4,00,000 12-1-19963,00,045 14-4-1995 1,00,000 26-1-1996____________25,00,045 5,00,000 15-2-1996 (15,00,000)15,91,077 31-3-1996 25,91,122 Balance Deposit _____________15,99,830 6-4-1996 (16,00,000 found short by 170)10,75,000 12-4-19961,40,00,000 Capital 99,09,555 Loss26,60,000 Interest 50,00,000 Cash paid___________ ____________ According to the learned AO these documents showed that net income of financial year 1995-96 by way of interest and profits was Rs. 15,91,077 and net receipts for the current financial year 1996-97 were Rs. 93,40,952. Page 6 gave details of Sikar shop and showed opening capital of Rs. 1.41 crores and interest income. On the date of search the assessee was asked to explain those papers but at that time he merely stated that he was not having a record and would explain those papers later on. On 19th July, 1996 at Hissar the assessee was once again asked to explain that account. In response he came out with a new story that the particular piece of paper was handed over to him by Shri Satpal who told the assessee that he would take it back at a later stage. When told that the account contained his name at the top of the account signifying that it was his account, the assessee replied that that was a mistake and instead of Mange Ram the name Satpal should have been there. Shri Satpal was produced on 30th July, 1996. When Shri Satpal was shown the documents he replied that he neither knew anything about those papers nor had any relation with them. Shri Satpal was once again asked to specifically comment on pp. 4 and 6 of documents A-4. In response Shri Satpal once again confirmed that he was not aware of those documents and contents thereof. Only Shri Mange Ram could explain as those documents were found from Shri Mange Ram and he had nothing to do with those papers. Shri Satpal stated that he had never handed over any cash or papers to the assessee. When confronted with the statement of Shri Satpal the assesee could not furnish any satisfactory explanation and he could merely repeat what he earlier stated. During the course of assessment proceedings the learned AO in his letter dt.

29th Jan., 1997 specifically asked the assessee to explain the entries on those documents. The assessee in his reply stated that the paper had been left with him by Shri Subhash Munim and that the assessee had nothing to do with that paper. The learned AO found that the assessee changed his stand from time-to-time and he failed to give any worthwhile or plausible reply. It was clear that the assessee was avoiding to give correct reply on those seized papers. The learned AO therefore, held that the assessee introduced a sum of Rs. 12 lakhs as on 1st April, 1995 as his investment. Thereafter the assessee made further deposits of Rs. 13,00,045. He earned profit of Rs. 11 lakhs and interest of Rs. 4,91,077. Thus there was suppressed receipts of Rs. 28,91,122 for financial year 1995-96. As there were contra entries of withdrawals the learned AO held that the assessee was entitled to get deduction of Rs. 15 lakhs against receipt of that amount on 22nd March, 1996. As regards entry of Rs. 15 lakhs dt. 26th March, 1996 the learned AO treated the same as unexplained investment of the assessee. Thus on the basis of this paper the learned AO worked out an undisclosed income of Rs. 55,91,122 for asst. yr. 1996-97.

39. For asst. yr. 1997-98 (financial year 1996-97) the learned AO found from those documents that the assessee made an investment of Rs. 37,50,000. That investment also remained unexplained. The learned AO added earning on this investment at Rs. 3,88,260 after applying a rate of 18 per cent. Thus the learned AO estimated undisclosed income based on this paper for asst. yr. 1997-98 at Rs. 41,38,260.

The learned AO also took notice of the seized document narrations pertaining to Sikar shop. As per the narration the assessee's capital invested in the Sikar shop was Rs. 1,41,00,000 on which interest of Rs. 26,60,000 was calculated. Against the aggregate amount of Rs. 1,67,00,000 a sum of Rs. 99,09,555 was adjusted on account of assessee's share in loss as well as assessee's share of withdrawal of Rs. 50 lakhs leaving balance of Rs. 18,55,000. The learned AO found that that was again for the whole year. Hence, it pertained to immediately preceding financial year 1995-96. Based on that document, the learned AO treated Rs. 1,41,00,000 as unexplained investment of the assessee and Rs. 26,60,000 as interest earned thereon and treated the sum of Rs. 1,67,60,000 as assessee's undisclosed income for asst. yr.

1996-97. Loss mentioned in the document was ignored for want of any explanation from the assessee.15 Jawra Singh through Pa wan5 Raja R. Through70 H.T. Hansi through Sajjan_____ The learned AO found that the document was written in the handwriting of the assessee himself. The document was found and seized at the residence of the assessee. The learned AO held that the amounts were written in lakhs. In the tape recorded conversation the assessee had admitted that the document had been written in the code language. The learned AO noted that document being in code was proved by the same entry appearing on p. 26 of documents D-9. There was an entry with the narration "70 lakhs H.T. Hansi Ke Naam". Shri Manohar Singh explained that that amount was paid by him to the assessee. Thus it was amply clear that the figures on p. 7 of documents A-5 were in lakhs. The learned AO vide letter dt. 29th Jan., 1997 asked the assessee to explain those papers. The assessee merely stated that the entries were some rough calculations. The assessee was once again by letter dt. 2nd May, 1997 asked to explain the entries on this document as well as p.

27 of document D-9 seized from the residence of Shri Manohar Singh and the statement of Shri Manohar Singh thereon. In reply dt. 23rd May, 1997 the assessee merely reiterated that the paper contained rough calculations. According to the learned AO, the assessee had admitted in tape recorded conversation that those were coded entries. It could not, therefore, be treated as rough calculations. In the course of tape recorded conversation the assessee had admitted that the entry had been written by the assessee in his own hands. It was therefore, apparent that the assessee was avoiding to give a clear-cut-reply in relation to the entries. From various documents it was seen that the assessee was advancing cash loans from out of available cash.

The learned AO, therefore, held that the assessee out of the cash received of various vends located at Hansi, Jind, Tosham, Bawani Khera, advanced a cash loan of Rs. 70 lakhs to Haryana Tube, Hansi as a loan.

The learned AO held that the other entries also on p. 7 of document A-5 represented loans and advances given by the assessee to different parties. According to him, the document showed that the assessee had made out of books cash loans. He held that out of this the sum of Rs. 70 lakhs advanced to Haryana Tube, Hansi had come from liquor business but for the balance of Rs. 170 lakhs the learned AO treated the same as assessee's unexplained investment for asst. yr. 1997-98.

41. In para 82 of the impugned order the learned AO has referred to p.

6 of documents D-4 seized from the residence of Sh. Manohar Singh that contained certain entries of receipts and payments. The document did not bear any date and year and therefore, the learned AO presumed entries on the paper relating to financial year 1996-97. The assessee was asked to explain the entries on that paper but no explanation was offered. The learned AO interpreted that the document recorded an income from lottery amounting to Rs. 88,650 earned by the assessee. The learned AO therefore, assessed a sum of Rs. 88,750 as assessee's undisclosed income from lottery for asst. yr. 1997-98.

42. On 23rd June, 1997 the assessee filed a petition before the CIT, Haryana, Rohtak. As the assessee made an issue of not being allowed proper opportunity, the AO has recorded in the impugned order in para 84 that the assessee was allowed opportunity to cross-examine a larger number of persons whose statements were recorded during the course of block assessment proceedings. The learned AO has enumerated the particulars of crossexamination in Annex. 11 of the assessment order.

There were 95 persons who were called for examination and best efforts were made to have them crossexamined by the assessee. The persons who could not be cross-examined fell into two categories, viz., (1) those whose depositions had not been used against the assessee and (2) those whose evidence had been used only as an illustration, e.g., salesmen at various liquor vends of the assessee present on the date of search. In any case if the assessee felt that any particular employee was required to be cross-examined by him, nothing prevented the assessee to produce that person for further examination. According to the learned AO, from the particulars enumerated in Annex. 11, it was clear that the assessee was not co-operative towards cross-examination and squandered most of the opportunities.

43. In the petition before the CIT(A), the assessee filed copies of 34 affidavits. Some of them from the persons whose statements had been recorded by the learned AO and cross-examination was done by the assessee. The learned AO found that some of the affidavits were undated, the Oath Commissioner had also not mentioned any particular number or date, the affidavits filed were only photo copies and originals were not produced. Some of the affidavits bore the date much earlier than last date of hearing i.e. 24th June, 1997 and there was no reason as to why the affidavits were not produced during the course of hearing accorded to the assessee. In some of the affidavits the deponents had not been identified before attestation by Oath Commissioner. All the affidavits were unauthenticated. No corroborative evidence was furnished by the assessee to substantiate the contents of those affidavits. The learned AO therefore, held that the affidavits filed had no evidentiary value and did not merit consideration. Without prejudice the learned AO observed that those affidavits did not advance the case of the assessee in any manner. In none of the cases the assessee produced the deponent. Therefore, the deponents could not be considered as witnesses relied upon by the assessee. The judicial papers of the affidavits had been purchased by the assessee in bunches from the same stamp vendor at the same station and at the same point of time. The contents on a large number of affidavits had been typed on the same typewriter. Many of the affidavits were in the handwriting of the Munim of the assessee. In the affidavits it was stated that earlier statement had been made by them under pressure or they had been made to sign on blank paper. The learned AO strongly denied the allegations and stated that none of those deponents retracted from their statements on their own but affidavits were obtained from them and given on being pressurized or influenced by the assessee. According to the learned AO, the law was well-settled that the burden to prove that the previous admission or statement made was not true was upon the person who sought to prove that earlier admission/statement was not true. The statements of the parties had been recorded by the Department on different dates by different persons and different places. The affidavits filed by the assessee had been recorded on the same date at one place on stamp papers purchased from the same stamp vendor. The learned AO, therefore, held that those affidavits were merely self-serving documents. The learned AO mentioned that in view of the assessee's petition the assessee was granted an opportunity of being heard by the CIT(A) before granting approval to the draft order furnished to him for approval by the AO.44. The learned AO has annexed to the impugned order under Section 158BC as part of the order a number of annexures. The following is the list of annexures thus appended to the order: (1) Copy of the statement of the assessee before the Police and FIR No. 114, dt. 15th April, 1996.

(4) Computation of figures relating to second entry in the summary sheets.

(5) Computation of figures relating to third entry in summary sheets.

(9) List of persons who were shown as partners with addresses at Dhanauri and Yeti Nagar.

(12) List of partnership deeds found from the residence of the assessee.

(13) Order sheet and observation of the CIT(A) with reference to petition filed by the assessee on 24th June, 1997.

45. Aggrieved by the aforesaid order under Section 158BC the assessee filed appeal before the Tribunal on 23rd July, 1997. After a large number of adjournments sought by the assessee the appeal was heard by Division Bench comprising of Shri Vimal Gandhi, Hon'ble President as JM and Shri B.R. Jain as AM on 3rd Aug., 2005, 4th Aug., 2005, 8th Aug., 2005 and 19th Aug., 2005. Thereafter the Hon'ble AM prepared a draft of the proposed order on assessee's appeal. However, after considerable discussion the members of the Division Bench could not arrive at an agreed order on assessee's appeal. During the course of discussion the Hon'ble AM considered it appropriate if the assessee's appeal was heard afresh by some other member. Thereupon the Hon'ble President thought it appropriate to withdraw from the case and having regard to the complexity of the issues involved and the background of the case constituted the present Special Bench for disposing of the appeal and also for considering and deciding the meaning and scope of "such other materials or information as are available with the AO and relatable to such evidence" appearing in Section 158BB(1) of the Act.

46. The assessee's appeal was fixed for hearing before us on 9th Dec., 2005 but hearing was adjourned to 19th Jan., 2006 as notice of hearing was not served upon the assessee. On 19th Jan., 2006 the hearing was adjourned to 7th March, 2006 at the request of the assessee. Hearing fixed on 7th March, 2006 had to be adjourned as both the parties stated that they had not received copy of the Hon'ble President's order wherein the question was referred to us for consideration. On 20th March, 2006 Shri K. Sampath, the learned Counsel appeared for the assessee and Smt. Sangeeta Gupta, CIT-Departmental Representative appeared for the Department. Arguments of both sides were heard by us and as the hearing could not be concluded the matter was adjourned to 22nd March, 2006 for further hearing. On 22nd March, 2006 the assessee Shri Mange Ram Mittal appeared in person and filed an application in writing, inter alia, stating that as Shri K. Sampath had not been able to obtain justice for the assessee from the earlier Bench, the assessee wanted to engage some Supreme Court advocate. The assessee sought 8 weeks time for that purpose. Smt. Sangeeta Gupta, CIT-Departmental Representative strongly opposed the application of the assessee and submitted that arguments of both the parties had virtually been concluded and the AO had personally come from Hissar along with assessment record. After consideration the hearing was adjourned to 27th March, 2006. On 27th March, 2006 an application was received from Shri Krishan Mahajan that he had received brief of the present appeal on 24th March, 2006 and he may be allowed further time by at least 10 days so as to facilitate proper representation of the case by him.

Thereupon hearing was adjourned to 4th April, 2006. On 4th April, 2006 Shri Kishan Mahajan, advocate appeared on behalf of the assessee and filed submission on question of jurisdiction. He requested us to determine the question of jurisdiction for hearing and disposal of the assessee's appeal.

47. After hearing the parties we turned down the assessee's objections in regard to jurisdiction of the Special Bench by a separate order in writing pronounced in the open Court on that day. Thereupon Shri Krishan Mahajan, the learned advocate requested for further time to prepare arguments. The request of Shri Krishan Mahajan was strongly objected to by the learned CIT Departmental Representative. After consideration, the hearing was adjourned to 7th April, 2006. On 7th April, 2006 the assessee filed a letter that as the amount of time required by Shri Mahajan for representing assessee's case had not been granted, the assessee had re-engaged Shri K. Sampath to represent the assessee and argue his case. The assessee, inter alia, stated that even otherwise Shri Sampath only had in past argued the assessee's case and he will continue doing so. On 7th April, 2006 we heard the concluding arguments from both the sides. The learned CIT-Departmental Representative submitted that she had already filed her written submissions also. Although written submissions from the assessee also had been filed during the course of hearing before the Division Bench, the learned Counsel for the assessee filed fresh written submissions.

48. We now turn to the arguments of the parties on merits. In this appeal filed on 23rd July, 1997 the assessee annexed as many as 131 grounds of appeal running into 24 pages. On 6th May, 2003 when this appeal came up for hearing the Bench while adjourning the hearing to 17th July, 2003 at the request of the assessee's counsel, directed that the concise grounds of appeal may be filed. Thereupon the assessee filed summarized grounds of appeal on 23rd Aug., 2004. The assessee also annexed thereto an assessment year-wise list of the amounts of assessments being disputed by the assessee. On perusal of the same it is seen that the assessee has objected to each and every item of computation of assessee's undisclosed income in the impugned block assessment order. In other words, the assessee has disputed hundred per cent of undisclosed income computed by the AO and according to him, the undisclosed income of the block period should be determined at 'Nil' even though in the return of undisclosed income under Section 158BC filed by the assessee on 14th Jan., 1997 undisclosed income of Rs. 1,00,000 was shown.

49. During the course of hearing before us, the learned Counsel for the assessee pointed out that the Parliament has enacted a separate Chapter XIV-B laying down special procedure for assessment of search cases by the Finance Act, 1995 with effect from 1st July, 1995. The fact that separate Chapter was inserted instead of any amendment of existing provisions showed that this Chapter had been inserted as a self-contained code. Therefore, while interpreting any part or portion of the Chapter, the view should be taken having regard to the nature of the special provision. The learned Counsel devoted considerable length of arguments to bring home the point that for any amount to be subject to tax under Chapter XIV-B, there should be direct nexus with the material discovered during the course of search operations. The learned Counsel relying on the judgments in Gursahai Saigal v. CIT ; CWT v. Kripashankar Dayashanker Worah strictly construed and there was no room for any intendment or supply of deficiency in respect of a special provision of the Act. The learned Counsel argued that there was a plethora of case law to the effect that an assessment under Chapter XIV-B has to be restricted to evidence found during the course of the search. He referred to the decisions in Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai); Indole Construction (P) Ltd. v. Asstt. CIT (2000) 66 TTJ(Ind) 420 : (1999) 71 ITD 128 (Ind); P.K. Ganeshwai v. Dy. CIT (2004) 91 TTJ (Chennai) 970 : (2002) 80 ITD 429 (Chennai); Morarjee Goculdas Spg. and Wvg. Co. Ltd. v. Dy. CIT (2005) 98 TTJ (Mumbai) (TM) : (2005) 95 ITD 1 (Mumbai) (TM); Npar Drugs (P) Ltd. v. Dy. CIT (2006) 100 TTJ (Del) (TM) 38 : (2006) 98 ITD 285 (Delhi) (TM) 84 TTJ (Mum.) 151 (sic) and GMS Technologies Ltd. v. Dy. CIT (2005) 93 TTJ (Del) 218.

The learned Counsel argued that a Third Member decision of the Tribunal had the same strength as that of a Special Bench and therefore, equal binding force. In support of this argument, he placed reliance on the judgment of Delhi High Court in the case of P.C. Puri v. CIT . The learned Counsel also placed reliance on HighN.R. Paper and Board Ltd. and Ors. v. Dy. CIT ; CIT v. Rajendra Prasad Gupta CIT v. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del); Dr. (Mrs.) Alaka Goswami v. CIT ; CIT v. Purshottamlal Tamrakar Uchehra and Chain Sukh Rathi v. CIT undisclosed income in an order under Section 158BC had to be on the basis of evidence found during the course of the search.

50. The learned Counsel compared the language of provisions of Section 158BB as enacted originally and as amended by the Finance Act, 2002 with retrospective effect from 1st July, 1995. He pointed out that the words "and relatable to such evidence" have been added by the Finance Act, 2002 with retrospective effect from 1st July, 1995. He referred to notes to Clause 62, Finance Bill, 2002 reproduced in (2002) 254 ITR (St) 161. He further argued that insertion of those words reinforced the legal position that what was not relatable to evidence found as a result of search could not be included in the computation of undisclosed income.

51. The learned Counsel took us through Chambers Dictionary, Oxford Dictionary and Advanced Law Lexicon, Book 4, and pointed out the following meaning to expression "relatable": Related Matters. The expression 'related matters', in common parlance, means connected matters which are connected or related and have relevance to the matter in issue.

Relates to. Ordinarily means "is connected with" or "have reference to".

Relating to. The phrase "relating to" as it occurs in an enactment restrictive of the right to sue, must be construed strictly, i.e., in favour of the right to proceed. (29B 480, 7b Bom. LR 497) 52. The learned Departmental Representative argued that the main question was the nature and scope of "relatable" in the amended provisions of Section 158BB. She devoted considerable length of arguments as respects statements recorded at the time of search proceedings. She argued that the statements constituted evidence and any further enquiries conducted in relation to contents thereof would amount to material relatable to evidence found during the course of the search. On the contrary if an admission was made during the course of the search, retraction thereof would not be a material relatable to evidence found during the course of the search. She argued that an item of income to be assessed in block assessment under Section 158BC must have a link with something found during the course of the search. It was not necessary that a complete working of undisclosed income or conclusive evidence in relation to undisclosed income should be found during the course of search itself. It was open to the AO to supplement evidence found or material gathered at the time of search by subsequent enquiry. It was also open to the AO to make an estimate of an undisclosed income after consideration of the material that came to light during the course of search and seizure. In support of these contentions, the learned CIT-Departmental Representative placed reliance on the Tribunal's decisions in ITO v. Sadhu Ram Gupta Steels (1998) 61 TTJ (Chd) 466 : (1998) 66 ITD 441 (Chd); Dhunjibhoy Stud and Agricultural Faim v. Dy. CIT (2002) 76 TTJ (Pune)(TM)339 : (2002) 82 ITD 18 (Pune) (TM); Video Master v. Jt. CIT (2003) 78 TTJ (Mumbai) 264 : (2002) 83 ITD 102 (Mumbai); Asstt. CIT v. Rameshchandm R. Patel (2005) 94 TTJ (Ahd)(TM) 361 : (2004) 89 ITD 203 (Ahd)(TM); Npai Drugs (P) Ltd. v. Dy. CIT (supra); C Vasantlal and Co. v. CIT (SC); CST v. H.M. Esufali EM. AbdulaliCIT v. Elegant Homes (P) Ltd. 53. On merits, the learned Counsel for the assessee argued that the main plank of the impugned order was that the assessee Shri Mange Ram was in fact and in substance the real owner of the wholesale English and country liquor vends allotted by the Haryana State Excise Department under L-l and L-13 licences as also of the auctioned retail vends under L-2 and L-14A licences. This allegation was negated completely by the evidence put on record by the assessee before the AO.The affidavits of Sarva/Shri Subhash Chander, Vipin Kumar, Karambir, Giyan Chand, Om Prakash, Mahabir Singh, Shiv Ram, Darshan, Nafe Singh, Sant Lal, Ramesh Kumar, Subhash Chander, Dariya Singh, Manpal Singh, Naresh Kumar, Rajender Kumar, Jaibeer Singh, Raj Kumar, Kishan Kumar, Ram Kishan were placed on record. However, none of the affidavits had even been mentioned in the impugned order leave aside of being considered. Hence relevant material germane to the first issue framed by the impugned order namely, whether the assessee was the wine contractor who took liquor contracts in names of various benamidars, was never considered by the AO. The material on the record clearly showed that the assessee was merely an employee of M/s Mittal & Co.

Those affidavits were relatable to Mittal & Co. and had to be considered for assessment. On their consideration the inference of the AO would appear erroneous. The affidavits of Sarva/Shri Satpal, Chandra Bhan and Subhash Chander clearly stated that the assessee was not a licensee of the liquor contracts or vends allotted or auctioned by the Haryana Excise Department. However, the AO while passing the impugned order did not even mention, leave aside consider, that relevant material put on the record before him. Such affidavits were filed in response to the AO's own enquiries and initiatives. Hence the relevant material was illegally kept out from being considered by the AO.54. The learned Counsel further argued that the cross-examination of the Excise Inspector Shri Anil Sharma clearly showed that the Excise Inspector stated again and again that the excise record was correct and excise record did not anywhere mention the assessee Shri Mange Ram's name as licensee of any of the allotted or auctioned liquor vends. The Excise Inspector further stated in his cross-examination that those whose names came on the licences issued by the Haryana Excise Department as successful bidders were "shareholders". He also pointed out that in his experience during his posting at Hansi the excise record was correct. Further, it was mandatory for any person to have receipt of Rs. 50,000 in his hand before he could participate in the bid as nobody could bid under the Excise Department's rules without such a receipt. According to Shri Anil Sharma there was no case where a person could get entry ticket to the auction without the receipt of Rs. 50,000 in his name. On that basis, Shri Anil Sharma stated that he could not produce any excise record to show that the assessee Shri Mange Ram had indeed bid for the Hansi liquor contract. He also had no knowledge about any connection or relationship between the assessee Shri Mange Ram and the firm of M/s Chander Bhan Om Prakash or the firm M/s Mittal & Co. whose names figured in the Excise record as licensees for the years 1995-96 and 1996-97 respectively and whose income had been subjected to tax in the hands of the assessee. However, the AO while passing the impugned order neither mentioned these relevant facts in the cross-examination of the Excise Inspector before coming to a conclusion against the assessee's plea that he was only an employee of M/s Mittal & Co. and that he could not be considered as a wine contractor taking liquor contracts or liquor licences in the names of various benamidars. Accordingly, it was ex facie clear that the AO while passing the impugned order took into account only that portion of the record before him which would fit in with the pre-determined conclusion of the assessee being a wine contractor taking liquor contracts or licences in the names of various benamidars. The AO ignored the specific statement of Excise & Taxation Officer Shri R.K.Dagar who in his cross-examination stated that while any person could bid on behalf of the person in whose name the receipt of Rs. 50,000 had been issued by the Excise Department, but he could not produce any record to show that Shri Mange Ram had bid during the auction.

Accordingly there was nothing in the statement of Shri R.K. Dagar to show that Shri Mange Ram was the controlling hand of the liquor business on behalf of benamidars and that he was not an employee of M/s Mittal & Co.

55. The learned Counsel further argued that there were serious allegations against the AO having pressurized certain witnesses to give statements against the assessee. Those witnesses-Sarva/Shri Ishwar Chand, Vipin Kumar and Rajbeer filed affidavits before the AO stating that they had been pressurized earlier and had either refused to say anything against the assessee or had retracted their statements given earlier under pressure of the AO. The AO further aggravated his illegal conduct by orally refusing to take the affidavits of these persons on record and the same had to be duly deposited in the Department against an official receipt dt. 24th June, 1997. The date of passing the impugned order was 27th June, 1997. The impugned order even though passed subsequent to the deposit of those affidavits did not mention anywhere and did not consider their probative value especially when serious allegations had been made about the illegal conduct of the AO himself. It was the duty of the AO to consider that material and to decide whether to declare those witnesses hostile or not in order to get at the truth for a fair and valid assessment.

56. According to the learned Counsel, the AO incorrectly held that the assessee Shri Mange Ram was the actual controlling hand of the entire liquor business since the ultimate destination of income and the control of finance was in his hands. The AO completely ignored the 26th May, 1997 cross-examination of Shri Manohar Singh wherein he had taken names of various people (and not only that of Shri Mange Ram) who used to bring cash from the various vends to him. He had stated that the cash from the vends at Bhawanikhera and Tosham used to be brought to him sometimes by Shri Mange Ram and sometimes by Shri Joginder Singh.

Concerning Gupta Wine Palace in Hansi, the cash used to be brought to Shri Manohar Singh sometimes by Shri Pushkar and sometimes by Shri Mange Ram. Cash from Jind vend used to be brought to Mr. Manohar Singh by Shri Mange Ram. Hence the conclusion of the AO that "cash was also brought by Shri Mange Ram from Jind, Bhawanikhera, Tosham and from Hansi vends under the overall supervision of Shri Mange Ram" was, on the face of it, incorrect. Even if the statement of Shri Manohar Singh was taken to be as described by the AO, then still it could not lead to the conclusion that Shri Mange Ram was the controlling hand of the entire business because the controlling hand would not dutifully go to collect and deliver cash to someone else who would be working under him especially if the test was that the ultimate destination of income was Shri Mange Ram. Accordingly, both in terms of the cross-examination of Shri Manohar Singh and in terms of the test applied by the AO Shri Mange Ram could never be the actual owner of the business instead of being its employee. It was only an employee who would deliver the cash from a vend to the cashier. The AO had selectively and illegally used the evidence of Manohar Singh against the assessee by adverting only to those portions of the evidence which, according to the AO, might show that the assessee Shri Mange Ram was the controlling hand of the liquor business. Accordingly, the AO had stated that the daily sale reports of the salesmen were received by Shri Manohar Singh who carried these reports to his house next evening and tallied them with the rough sheet on which cash received on the previous night and the next morning were written. However, the cross-examination of Shri Manohar Singh showed that he specifically stated that the daily sales reports of Bhawanikhera, Tosham, Jind and Gupta Wine Palace did not come to him.

That portion of the evidence had been conveniently ignored by the AO to proffer his version of facts. If the daily sales reports did not come to Shn Manohar Singh, as stated by him in his cross-examination, then the further steps of tallying and consolidating the entries in such statements would not arise at all. That negated the entire basis of the assessment order based on the statement of Shri Manohar Singh.

57. The learned Counsel further argued that the AO had relied on the statements of the salesmen Pushkar, Jaibeer and Jagdish to show that the assessee was the actual controller of the liquor business at Hansi.

The AO had ignored completely the affidavits of Jaibeer and Jagdish put on the record on 23rd June, 1997. The affidavit of Jaibeer stated that he was working as an employee at the Hansi vend along with Shri Mange Ram, the assessee and that the earlier statement given by him was under severe pressure. Similarly Jagdish had given an affidavit retracting his earlier statement and stating that Shri Mange Ram was an employee along with him at the Hansi vend. In his cross-examination the salesman Pushkar stated that he could not tell who were the shareholders of Hansi vend in 1996-97. Furthermore, 53 witnesses were never summoned for cross-examination despite an application given for their summoning duly filed on 23rd June, 1997.

58. The learned Counsel contended that the AO had ignored the material contradiction in the evidence of Smt. Budhwanti, the landlady of the main Gaddi (office) of the liquor business between the statement given by her on 3rd July, 1996 and the papers put on the record by the assessee before the AO concerning the eviction proceedings launched by Smt. Budhwanti in the Court of the Additional Senior Sub Judge, Hansi concerning the premises of that very office. In her statement of 3rd July, 1996 Smt. Budhwanti stated that she had given a shop (office premises at Barsi Gate) on rent to Shri Mange Ram. However, in the earlier eviction case filed by her for the same premises she had stated that the premises had been given on rent to Shri Baldev Raj by a Rent Deed dt. 26th May, 1993 and that after the expiry of the deed on 28th Feb., 1994 Shri Baldev Raj continued to remain a tenant. It was also to be borne in mind that Smt. Budhwanti was the wife of the rival liquor contractor to the liquor contractor for whom the assessee was working.

However both statements could not in any case be relied upon because they did not form evidence for the block assessment as they were neither collected in search nor had any connection with any material recovered during search.

59. The learned Counsel argued that the basic evidentiary principle was that oral evidence did not generally negate the primary documentary evidence especially when the documentary evidence was an official record. Strangely enough the AO had relied upon the statements of a few officials of the Excise Department to conclude that the official excise record was incorrect insofar as it did not show Shri Mange Ram, the assessee as a shareholder in any of the licences given by the Excise Department. No thought was given as to how the Excise Department could be functioning in defiance of the law and the excise policy. Further, the AO had completely ignored that the certificate of the Collector-cum-Joint Excise & Taxation Commissioner (Proh.) Haryana, Chandigarh categorically stating that 15 partners of M/s Mittal & Co.

to whom the licences for country liquor and foreign liquor vends were granted in the year 1996-97 did not show Shri Mange Ram anywhere as a partner in that firm, was conclusive under the Evidence Act.

60. The learned Counsel further relied upon Section 273 of the Cr.PC that all evidence taken in an inquiry or any proceedings other than a trial should be taken in the presence of the accused or in the presence of his pleader. The Explanation under Section 273 of the code clearly stated that accused included a person against whom a complaint had been made and who was to be discharged when nothing was found against him (Section 118). Thus, the assessee in this case was a person against whom a complaint had been made or an information laid and hence fell under the category of an accused entitled to the benefit of Section 273 Cr.PC. The entire evidence in the assessment inquiry proceedings had been taken in violation of Section 273 Cr.PC and hence could not constitute a valid and legal basis for conducting the proceedings against the assessee.

61. During the course of hearing before us, the learned Counsel objected to additions made for several years on account of security deposits, investments, net profits, casual expenses and such others to the income for various years. The addition on account of security deposit for the different firms had been made on the basis of the information elicited by the AO during post search enquiries with regard to several firms, namely, Gupta & Co., Mittal & Co., Mange Ram & Co., Gupta Wine Palace, Chander Bhan Om Prakash & Co., Ved Prakash Darshan Singh & Co., Shanker.Lal & Co. The AO failed to note that the deposits were made by the respective firms and not by the assessee. There were no documents or papers recovered during the search which even remotely indicated that the assessee in his personal capacity had made such massive investments. The excise officials had deposed that the investments were made by the licencee firms. There was no licence in the name of the assessee. The partnership deeds which were also located in search did not anywhere indicate the assessee as a partner. The security deposit receipts also did not indicate the assessee as the payer. Not one security deposit receipt in the name of Mange Ram was located during the search. The AO was not entitled to call to doubt the creditability of the evidence of another Government Department. His quoting from (1988) 170 FIR (St) 187 in para 39 of the assessment order was completely out of place. That dictum could not apply to a block assessment. With regard to papers recovered during the search the AO was required to prove the contents incorrect and erroneous if he so asserted in terms of the legal presumption envisaged under Section 132(4A) and also on generally accepted principles of law as mentioned in CIT v. Daulatram Rawatmull . There was no evidence uncovered during the search of Mange Ram either of his being the owner or partner in any of the 9 firms listed in para 43 of his order. The search only showed recovery of cash of Rs. 1 lakh and odd in Mange Ram's hands plus jewellery of around 4 tolas. That showed the status and position of Mange Ram. There was no proof at all of the assessee having paid any security deposit. Likewise, there was no proof of the assessee having earned the estimated profits as worked out by the AO.The working of the estimated profits was narrated by the AO in paras 53 to 65 of the assessment order. The assessee was never confronted for rebuttal. A perusal of those paras revealed that all information had been collected by the AO after search and that there were no documents or papers recovered during the search which would evidence or vouch for any such realization of profits. The AO had estimated the profits on the basis of assumption and presumption after culling out some basic information from the Excise Department. Admittedly all such evidences including the computation of stock position, sales, initial investment for such business was based on hypothetical projections. There was not an iota of evidence recovered during the search to support any of those estimates and projections. Purchases of the order as estimated could never be in cash. The AO had oversimplified the issue. Even elementary enquiries from bank on this point had not been made. That was not the law for block assessment. It was required to be based on actuals. In actual fact, the AO deliberately did not proceed against the partnership firms. The aspect of benami was only a presumption of the AO The AO never thought it fit and proper to summon the firms with their books of account. Part of the secondary records were recovered from the premises of Manohar Singh. Manohar Singh had confirmed the expenses of the firm in his cross-examination. With that enquiry against the assessee's role ought to have come to end.

62. The learned Counsel further argued that the AO had completely ignored the need to telescope various transactions. Investments in purchases had to be cycled out year after year and only peak was to be taken. He also made additions on account of casual expenses. All additions on account of casual expenses were based on estimates. They were not based on any seized material. In that way the addition in the assessment order regarding initial investment, investment in purchases, the casual expenses, investment required for business, security deposits and licence fees were all imaginary and had been made in complete violation of block assessment and merited to be quashed as such.

The AO had made separate additions on account of documents A4 and A6.

Document A4 was one of dubious origin. The figures therein did not conform to any of the figures obtained by the AO during the course of the investigation carried out by him vis-a-vis the excise authorities.

The authorship of those documents had not been fixed. Even Manohar Singh, the star witness of the Department had not been able to throw light on those documents. Even the name was doubtful. It could be read as 'Bhage Ram'. To which business this document pertained too was not clear. According to the AO there were more than 9 firms. To which of the 9 firms that paper pertained was not known.

Furthermore, A4 and A6 read together resulted in a loss of Rs. 75 lakhs. (A4 interest : Rs. 4.91 lakhs, profit : Rs. 11 lakhs and A6 loss of Rs. 99.09 lakhs). The AO should not have taken the profit alone. He had to take a total of the two even if the total of the two resulted in a loss. From paper A4 in asst. yr. 1997-98, the AO made an addition of Rs. 41.38 lakhs. There was no such figure of computation of profit in that seized documents. For asst. yr. 1997-98, the additions had been made on p. 7 from Annex. A-5. The addition was of a sum of Rs. 2.25 crores. In the first place, the entries in that paper were undated. The entries were not in the hand writing of the assessee. It was a dumb document not amenable to any intelligible interpretation or purposeful analysis. Admittedly, the papers were undated. The AO presumed the financial year 1996-97. Such presumption was not available in a block assessment. In any case those entries were required to be telescoped.

63. Regarding the properties alleged to be held by the assessee the learned Counsel argued that the AO had prefixed his narration with the remarks "During the course of search enquiries". It was, therefore, clear that the entire addition had proceeded only on the basis of search enquiries and not on the basis of any recovery of documents found during the search. It was a well established principle that a block assessment was not meant for making an estimation in such manner.

The enquiry could culminate in an addition only if the information flowed out of search. The house at Rania had been purchased on 28th Nov., 1988 for Rs. 18,000 with stamp duty charges of Rs. 2,250. The AO went on to add that after purchase the old structure was demolished and a new construction was carried out on that place. The search had not drawn out any paper or documents which could suggest the demolition of the structure and the construction of new one at this place. The AO had made the addition on the basis of valuation report obtained after the search which was again not permissible in law. Refer Indole Construction (P) Ltd. v. Asstt. CIT (2000) 66 TTJ (Ind) 420 : (1999) 71 ITD 128 (Ind). For property at Yeti Nagar, Hansi, the AO made two additions of Rs. 17,54,500 in asst. yr. 1991-92 and another sum of Rs. 4,78,608 in asst. yr. 1994-95. The AO stated that he had obtained information and documents of registration revealing the ownership in 7 names from the Registrar's office. He mentioned the amounts shown in registry and the area of plot yet, however, he added the sum total of registry as Rs. 16.54 lakhs instead of only Rs. 1.11 lakhs to which they aggregated. None of the persons in whose names the plots were registered had come forward to confirm the view point of the AO that they were benamis of the assessee. The AO had conveniently forgotten the onus of proving the benamiship as of the persons who so alleged. In order to get over this difficulty in terms of the amended benami Act, the benami is recognized legally as the actual owner. If that be the case, and if some persons were to be benami of the assessee no addition could be made in the hands of the assessee for the reason that they were deemed regular owners of the property. The reason for holding benami were totally untenable. Merely by virtue of a close relationship, a benami relationship did not automatically come into existence. Just because one purchaser hailed from the same village as that of the assessee, it could not be presumed that he was benami of the assessee. For the fact that the purchases had taken place on a single day, it could not lead to the conclusion that the assessee was the owner of those plots.

The statement of Vijay Kumar was being utilized to show that the persons mentioned as the owner in the registry had not visited the registry. In the first place in Vijay Kumar's statement, there was nothing to hold that the persons in whose name the plots were registered were benami of the assessee. The statement of Vijay Kumar could not be used as evidence against the assessee for it had never been confronted and remained uncorroborated. Even the statement of Manohar Singh did not establish that the assessee was the owner of those plots. The assessee had, in terms of the statement, only issued instructions for payment. That instructions could have been issued, if at all it was indeed issued in other capacity also. Regarding House No.1637, UE-II, Hissar the learned Counsel argued that at the time of search no document with regard to that property was recovered. It was only during enquiries that AO found house No. 1637, UE-II, Hissar in the name of the assessee's wife. He thereafter obtained information from the original owner, Pushpa Devi that she had sold that property on 24th Feb., 1994 to the wife of the assessee for Rs. 3.75 lakhs with stamp duty charges of Rs. 58,125. It was noteworthy that even this witness did not confirm or even make a mention of the fact that it was assessee who had paid the amount or that it was on his behalf that the registration was done in the name of his wife. Smt. Prem Lata had her own sources of income and further funds which had been provided to her by her father and her brothers. She also had her istridhan. The AO further went to exaggerate the value of the property by making a reference to Valuation Officer. Such a reference was not permissible in block assessment. Regarding Sunder Hotel Building the learned Counsel argued that it was also during post-search enquiries, gathered that another property was in the name of Smt. Prem Lata. Here again the AO blindly made a reference to DVO and deputed his inspector to determine the fair market value. Both actions were erroneous and contrary to law.

Plot No. 1490/46, Gurgaon was in the name of Mange Ram, the assessee.

However, the AO learnt of the property through HUDA's office vide letter dt. 16th Aug., 1996 and not through any document or paper recovered in search. Since nothing was found during search no addition could be made on that point.

64. The learned Counsel referred to the discussion with regard to drawings in para 71 of the assessment order. The AO having examined that aspect of the matter with copies of capital account along with return filed under Section 158BC decided that the household expenses were sought to be assessed on the basis of papers filed with the return and not on any material recovered during search. The AO's own assumption was that amounts utilized for drawings were relatable with the statement filed with the return and with further enquiries made thereafter. In such circumstances the addition as made was beyond the purview of Section 158BC of the Act. Para 71.1 of the assessment order contained the AO's assessment of the social status of the assessee. In so doing he listed the various items that were found during the search.

In para 75 the AO made an addition of Rs. 5 lakhs on that count. The cost of procurement of any of the items was unknown. Further, none of the items were described in its completeness. The age of the items was also unknown. Unless there were vouchers or bills or any entry, or document or paper or evidence of procurement of those items during the block period out of unexplained sources no cognizance could be taken of the expenses on those assets. There was no presumption in law that such assets were acquired during the block period. The complete absence of any evidence to that end took these items totally out of the fold of the block assessments. Para 71.3 contained the AO's account on account of education of children. So did para 72. In para 72 the AO mentioned that "information was collected from the school where the sons and daughters are studying." In para 71.3 the AO proceeded with general information that "the son of the assessee Shri Rajiv Mittal is studying in Chaman Vatika School". In neither of the paras there was any mention or reference of recovery of any material during the search which could go to show that any unexplained monies from whatever source had been expended on children's education. At the end of para 72 the AO had drawn a chart where the educational expenses were estimated on account of dress, books, travel, pocket money, etc. In a block assessment said estimation had no place. In the latter part of para 72 the AO stated that, "documents impounded from Shri Ashok Kumar, Hansi during assessment are regarding fruit purchased by the assessee." Clearly those documents had not been recovered during search of the assessee.

There was a discussion of telephone expenses later again in para 73.

The AO mentioned that the telephone number installed in the residence of the assessee was noted in the Panchnama during search but went on to add that the telephone was not in the name of the assessee but stood in the name of one Shri Ram Nath Ghumla. That being the case and no voucher or document having been recovered with regard to that telephone as belonging to the assessee during the search, no addition on that account could have been made. He also estimated in para 74 the electricity expenses. Recourse to estimation was taken by the AO in the complete absence of any evidence collected or ferreted out during the search with regard to those items. Without prejudice massive additions had been made on account of income earned by the assessee. Once income was added then the expenditure incurred out of that income could not be once again added as income. Telescoping was required to be resorted to in such circumstances. As regards car NE-118 the AO mentioned that the car was registered in the name of one Shri Hardwari Lal. Thereafter certain enquiries had been made. Statementshad been recorded. If there was a voucher or document depicting the car's ownership in the name of the assessee and such document was recovered during search then alone that formed the subject-matter of block assessment. The AO had no such evidence in hand. Nobody during the investigation had said so. He proceeded with an estimation of investment at Rs. 3,55,000. There was absolutely no proof of such investment by the assessee. In para 75.4 the AO noted one truck Tata Canter HR 39-1544 registered in the name of Shri Subhash Munim holding that Subhash Munim was a benami of the assessee. Thereafter the AO made enquiries during assessment from different people and on the basis of such enquiries he estimated the investment at Rs. 5 lakhs in the asst. yr. 1996-97. The utilization of evidence collected in this manner in a block assessment could not support addition as made. Apparently no paper was located in search which would confirm that Subhash Munim was a benami of the assessee; secondly Subhash Munim himself had not made any such statement and, thirdly, whosoever had made the statement had not made any mention as regards amount of investment.

65. The learned Counsel referred to the addition of amounts in the asst. yr. 1987-88 (Rs. 3,23,500) in 1992-93 (Rs. 2,96,000) in 1991-92 (Rs. 2,20,000). In para 76 of the assessment order the AO began by saying "the assessee has submitted copies of balance sheets for different years along with return under Section 158BC". Those balance sheets which had been filed along with the block return were not required to be scrutinized in the manner in which the ordinary balance sheet was examined when filed with a regular return. By its very nature the block assessment took in its hold only such balance sheets which were the basis of seized material. Those three additions were not such which were discovered during the search, and therefore, could not have been taken into cognizance for completing the block assessment. The AO had relied upon the apex Court decision in Sieelekha Baneijee v. CIT . That case was not a case of block assessment. The onus on the assessee to prove the identity, creditworthiness and genuineness of transactions in a block assessment could extend only to such cash credit as are ferreted out by search operation. For asst. yr.

1995-96 the AO added Rs. 60,000 on account of two gifts received from Satish Kumar and Subhash Chander. The factum of those gifts had been noticed from the details in the capital account filed during the assessment proceedings. In such circumstances the evidence as collected was not germane to the block assessment.

66. The CIT-Departmental Representative argued that in the instant case the learned AO had painstakingly conducted elaborate enquiry and he had marshalled and weighed the facts and circumstances of the case based on huge evidence/material brought on record. The AO could establish with certainty that there was no truth in the make-believe averment of the assessee that he was merely an employee. The very house he lived in and the style and standard of his living belied the contention that he was merely an employee at a liquor vend. Documents seized from the residence of the assessee could be in possession of a person having ownership interest in the business and not merely in capacity of an employee. Documents seized elsewhere also pointed out that the assessee was controlling and managing the business and his writ prevailed in all matters related to business. Statements of innumerable persons found working at various liquor vends all pointed out that it was the assessee who was the owner of the business. Even the visiting card of the assessee described him as a dealer in liquor business. It was the assessee who was the mastermind and entrepreneur in various liquor licences acquired in various assessment years as elaborately established by the AO in the impugned order. As the assessee had no intention to pay taxes and his entire investments in business operations were from black money, the assessee took recourse to obtain licences in benami names. The assessee hoped that as officially his name was not recorded anywhere, he would go scot-free. For official record purposes the assessee put up men of straw who were just a front and many of them were petty employees of the assessee only. Those persons and lot more persons connected with the assessee's business net work, in their statements on solemn affirmation pointed out that the assessee was the proprietor of various liquor vends and business. After having been thus cornered, the assessee tried to wriggle out after influencing and pressuring the concerned persons to hand over to him their affidavits of retraction. In the impugned order the learned AO had elaborately described how the assessee obtained retraction affidavits with a view to escape the tax dragnet.

67. The learned CIT-Departmental Representative addressed us at a considerable length as to why the retraction statements subsequently procured by the assessee should be ignored and reliance be placed on the statements originally given by those persons. The learned CIT-Departmental Representative argued that the statements were originally given by those persons before various IT authorities who were in law entitled to record their statements. The statements thus recorded constituted valuable evidence admissible in law. Some of the statements were in the nature of admission/confession. There was not an iota of material brought on record except wild allegations that the statements as recorded by various IT authorities had not been given in a free and congenial manner. Those statements had been recorded by different IT authorities at different places at different points of time. The assessee had alleged that the Department had crafted a conspiracy against him. There was no reason as to why so many officers of the Department should proceed against the assessee by adopting unjust and unfair means oblivious of their office and duty. That way it would be easy for any tax evader on being caught to allege a conspiracy. The fact of the matter was that none of those officers had any interest in the assessee except to discharge of their official functions and duties. In support of this contention, the learned CIT-Departmental Representative relied upon a large number of Court pronouncements and Tribunal decisions. She referred to the judgments in CIT v. Dr. R.C Gupta and Co. ;. Rameshchandra and Co.

v. CIT ; V. Kunhambu and Sons v. CIT (supra); Asstt.

CIT v. Laxmanbhai J. Patel (2001) 72 TTJ (Rajkot) 211 : (2001) 77 ITD 166 (Rajkot); ITO v. Sadhu Ram Gupta Steels (supra); Asstt. CIT v.Rameshchandra R. Patel (supra); Dhunjibhoy Stud and Agricultural Farm v. Dy. CIT (supra) and the judgment of Hon'ble Supreme Court in the case of C. Vasantlal and Co. v. CIT (supra) and in the case of Narayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi AIR 1960 SC 100 and argued that the initial admission or statement given by a party/witness constituted an independent evidence of fact and unless there was adequate material such statements were required to be acted upon. The CIT Departmental Representative further argued that mere allegation that the statements were recorded under coercion and threats was not enough and it was necessary to prove the actual existence of such coercion or threat. In support of this contention, she relied upon the decisions in Video Master v. Jt. CIT (supra); K.V. Narasimhan v.ITO . She further argued that a subsequent statement of retraction did not have the same value as the original statement. In case the original statement was retracted there should be good grounds to show as to why the original statement was incorrectly given and how the subsequent statement was factually correct and the earlier statement was not. In support of these contentions, the learned CIT-Departmental Representative relied upon the judgments in CIT v.Sardar Store , Asstt. CIT v. Laxmanbhai J. PatelNarayan Bhagwantrao Gosavi Balajiwale v. Gopal Vinayak Gosavi (supra); Video Master v. Jt. CIT (supra); ITO v. Sadhu Ram Gupta (supra); V. Kunhambu and Sons v. CIT (supra); Rameshchandra and Co. v.CIT (supra); Asstt. CIT v. Rameshchandra R. Patel (supra). Thus the learned CIT-Departmental Representative argued that stereotype affidavits subsequently procured by the assessee could not displace the correctness of the facts as forthcoming from the original statements of the deponents. She further argued that self-serving documents/statements being relied upon by the assessee were required to be corroborated, otherwise the same were liable to be ignored. She relied upon the judgment of the Hon'ble Supreme Court in the case of CIT v. Durga Prasad More that it was neither a rule of prudence nor a rule of law that the statement made in an affidavit which remains uncontroverted must invariably be accepted as true and reliable.

68. The learned CIT-Departmental Representative argued that the assessee was unnecessarily harping on the fact that his name had not been mentioned as licencee in the vends allotted or auctioned to him by Haryana Excise Department. The affidavits of the parties insofar as the same mentioned that the assessee was not a licencee did not help the assessee. The fact of the matter was whether or not it was the assessee who was the real owner. The learned CIT-Departmental Representative argued that the statements of the parties had to be considered in totality and it was the outcome of the entire material gathered by the AO that was required to be seen.

69. The learned CIT-Departmental Representative strongly opposed the objections of the assessee against post search enquiries made by the learned AO. It was not as if the AO was merely required to sit up and sift the material gathered during the course of search and based thereupon decide the points before him one way or the other. After the search the AO was required to take the evidence found and material gathered to its logical conclusion. The AO was entitled to carry out further investigation into the facts of the case if the same was required to arrive at correct findings of fact. The AO was required to carry out such verification as called for or the AO could enquire into the genuineness of the facts stated before him by the assessee and assessee's representatives. The AO was also entitled to carry out such enquiries as required for correct estimate of income. The learned CIT-Departmental Representative argued that while it was true that further enquiries and verifications ought to be based on certain evidence found or material gathered or information received during the course of the search, to say that the computation of undisclosed income should be based upon the evidence, material and information gathered during the course of search alone was not correct. The AO was entitled to conduct enquiries at any length as long as the same originated from the search proceedings. In support of this contention the learned CIT-Departmental Representative strongly relied upon the decision in the case of Npar Drugs (P) Ltd. v.Dy. CIT (supra).

70. The learned CIT-Departmental Representative argued that the assessee could not object to computation of undisclosed income made by the AO for the reason only that the same was based on estimate.

Undisclosed income, by its very nature, was not susceptible to accurate computation. Where the information was withheld from the AO and the material necessary to arrive at an exact computation was not furnished before the AO, the AO had no option but to make his own estimate. An assessee who withheld information could scarcely be heard complaining that the computation of the AO was an estimate and not a working based on complete data. In support of this contention the learned CIT-Departmental Representative placed considerable reliance upon the judgment of Hon'ble Supreme Court in the case of CST v. H.M. Esufali H.M. Abdulali (supra).

71. In his rejoinder the learned Counsel for the assessee argued that as far as the statements of the assessee Shri Mange Ram were concerned, there was no retraction. The statements of the assessee after search were recorded not under Section 132 but under Section 131 of the Act.

The statements recorded under Section 131 were therefore, not in continuation of the search. Accordingly only the statements recorded during the course of search could be used for the purpose of block assessment. The assessment under Section 158BC was aimed at utilization of evidence found as a result of search. That implied that the material was available before search commenced and thereafter found or discovered during the course of search. That could not be said of the statement recorded during the course of the search and in no case the statement recorded after the search. Be that as it may, there was no retraction at any point of time from the assessee. The learned Counsel pointed out that the reliance placed by the learned Departmental Representative on the visiting card of the assessee was not correct as appearing on p. 226 of the Departmental paper book. Telephone No. 50497 noted on the visiting card was telephone number of Dalip Singh, the complainant in the case of the assessee. Moreover, while it was the case of the Department that the assessee was the real owner of 9 partnership firms, there was no hint thereof in the visiting card. The visiting card merely mentioned that the assessee was wine contractor.

Any person associated with liquor business was popularly considered to be liquor contractor. For that reason the assessee was mentioned as a contractor. The card did not mention the assessee as owner of any particular liquor vend or any particular liquor business. Even the recovery of the card was not from the person of the assessee. The card seized by the Department was in fact planted by the assessee's enemy Dalip Singh through one Jaiveer Singh. Similarly the statement of Budhwanti could never be relied upon because she was the wife of Dalip Singh. The request of the assessee to cross-examine her had not been acceded to. As to the FIR lodged by the assessee on 15th April, 1996 the counsel argued that it was long before the search and therefore, could not be said to be evidence found as a result of search. Many of the papers being relied upon in the Revenue's compilation of paper book had been recovered from Shri Manohar Singh. On that material the provisions of Section 158BC could not be applied. The AO was required to make block assessment only with regard to material found or recovered from the assessee. If in the search of a third party any document or evidence having a relevant bearing or vital connection with another was. discovered, the same called for a separate assessment under Section 158BD. For initiation of proceedings under Section 158BD the satisfaction was required to be recorded by the AO, being a mandatory condition. As no such steps were taken and no proceedings under Section 158BD were initiated against the assessee after recording of satisfaction, no assessment could be made in the case of the assessee on the basis of any material recovered during the course of search proceedings at the residence of Shri Manohar Singh and in connection thereafter.

72. The learned Counsel argued that for the purpose of assessment of an income on the basis that there was no satisfactory explanation with regard to source of investment, the burden was entirely upon the Department to establish that the investment had been made in the first instance as in the case of the assessee security deposits and licence fee had been paid by persons other than the assessee himself. Unless the Department first could establish that the licence fee was paid or security deposit was paid by the assessee only, there did not arise any question of assessment of an undisclosed income in the case of the assessee. Lastly, the learned Counsel reiterated that the additions in the course of block assessment, were required to be made only on the basis of evidence found during the course of search. For that purpose he relied upon the judgments in CIT v. Ravi Kant Jain (supra); CIT v.Rajendra Prasad Gupta (supra) and CIT v. Smt. Usha Tiipathi . The learned Counsel also urged that we should delete all the additions made by the AO on the basis of wild guess or estimate. Reference was made to Chitra Devi v. Asstt. CIT (2002) 77 TTJ (Jd) 640; Bajrang Textiles v. Dy. CIT (2004) 83 TTJ (Jd) 566 : (2004) 3 SOT 115 (Jd) and Pankaj Dahyabhai Patel (HUF) v. Asstt. CIT (1999) 63 TTJ (Ahd) 790. The learned Counsel also objected to the additions made on the basis of Departmental valuation reports. For that purpose, reliance was placed on CIT v. Vinod Danchand Ghodawat and CIT v. Ashim Krishna Mondal learned Counsel also argued that if an addition on account of income was made, addition to that extent in respect of expenditure could not be made and the assessee was entitled to telescoping.

73. We have carefully considered the arguments of the parties and perused the impugned order. During the course of hearing the learned Counsel for the assessee have vehemently argued that the AO has exceeded the limited jurisdiction under Section 158BC and most of the items of undisclosed income assessed by him in the impugned order are required to be deleted for that reason alone. The contentions of the assessee in this regard are closely connected to the question referred to us by Hon'blePresident. We find that these provisions have been analyzed and considered in Third Member decisions of Tribunal in Morarjee Gokuldas Spg. and Wvg. Co. Ltd. v. Dy. CIT (supra) and Npar Drugs (P) Ltd. v. Dy. CIT (supra). The learned Counsel relying upon the decision of Hon'ble Delhi High Court in the case of P.C Puri v. CIT (supra) argued that those two decisions of a Third Member of the Tribunal have the same force as that of the Special Bench of the Tribunal. The learned advocate for the assessee argued that in view of those Third Member decisions, the matter stood already concluded and there was no need for reference by Hon'ble President of the question to us for consideration. We find that in the case of Morarji Gokuldas Spg.

and Wvg. Co. Ltd. v. Dy. CIT (supra), the factual position was that while the Department had amassed after painstaking enquiries of considerable magnitude a lot of evidence/material, none of it was found or relatable to anything found or discovered during the course of or as a result of search proceedings. The question for consideration was whether in an order under Section 158BC the AO can bring to assessment any undisclosed income that he determines as on the date of framing the order under Section 158BC or the AO is required to confine himself only to the undisclosed income computed on the basis of the evidence found as a result of search and such other materials or information as are available with the AO and relatable to such evidence. As prima facie during the course of search against that assessee no evidence, material or information was found or discovered during the course of or as a result of the search, the Tribunal did not have an occasion to in-depth analyze the meaning and scope of the phraseology, "such other materials or information as are available with the AO and relatable to such evidence."Npar Drugs (P) Ltd. v. Dy. CIT (supra) the Third Member was concerned with the question of inferences that could be drawn from the evidence and material found during the course of search and enquiries made subsequently. Thus the discussion in that judgment is restricted to the facts and circumstances of that case alone. As Hon'ble President has now specifically referred to us to look into the meaning and scope of the phraseology, we propose to go into this aspect in greater detail.

75. The Finance Act of 1995 inserted a new Chapter XIV-B in the IT Act.

It provided a new concept for assessment in relation to searches conducted under Section 132 of the Act or requisition made under Section 132A after 30th June, 1995. The purpose of enactment of the Chapter as given in Clause 32 of the Notes on Clauses of the Finance Bill, 1995 read as under: Searches conducted by the IT Department are important means of unearthing black money. However, under the present scheme, valuable time is lost in trying to relate the undisclosed incomes to the different years. Tax evaders generally manage to divert the focus to procedural and legal issues and often invent new evidence to explain undisclosed income. By the time search-related assessments are completed, the effect of the search is considerably diluted. Legal battles continue for many years to decide which income is assessable in which assessment year. No finality is reached and the seized assets remain with the Department for a long time.

In order to make the procedure of assessment of search or requisition cases effective it is proposed to introduce new provisions for assessment of undisclosed income detected as a result of search or requisition. Under the new provisions, the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995, shall be assessed separately as income of a block of ten previous years. Where the previous year has not ended or the due date for filing a return of income for any previous year has not expired, the income recorded on or before the date of search or requisition in the books of account or other documents maintained in the normal course relating to such previous years will not be included in that block. (1995) 124 CTR (St) 210 : (1995) 212 ITR (St) 306.

The salient feature of Chapter XIV-B is that "undisclosed income" of a person would be assessed as the income of a block period consisting of previous years relevant to 10 assessment years preceding the previous year in which the search was conducted or requisition was made and also period of current previous year up to the date of the search or the requisition. The undisclosed income of the block period has to be taxed at a flat rate of 60 per cent as given in Section 113. The order of assessment for the block period is to be passed within one year from the end of the month in which the last authorization of the search under Section 132 or the requisition under Section 132A was executed in case where the search is initiated or requisition made before 1st day of June, 1997. In cases where a search was initiated or requisition under Section 132 was executed on or after 1st July, 1997, a time-limit of two years has to be reckoned with instead of one year. Prior to insertion of Chapter XIV-B, the estimate of the undisclosed income was being made in a summary manner under Sections 132(5) and 132(7).

Chapter XIV-B has substituted the earlier provisions of Section 132(5) and with an extension of scope.

Soon after the enactment of the provisions of Chapter XIV-B, a controversy arose as to whether the block assessment was a substitute of regular assessment order or the block assessment was in addition to regular assessments. This controversy or doubt has been set at rest by clarification in the Memorandum Explaining the Provisions of Finance (No. 2) Bill, 1998 in the following words: To set at rest the controversy as to whether block assessment subsumes the regular assessments or independent of the latter, the bill proposes to clarify that block assessment shall be made in addition to the regular assessment of previous years included in the block period. Further, it proposes to provide that income assessed in regular assessment shall not be included in the block period and income assessed in the block period shall not be included in the regular assessment. The clarificatory amendment is proposed to be inserted retrospectively from the 1st day of July, 1995. (1998) 147 CTR (St) 178 : (1998) 231 ITR (St) 228, 256.

After insertion of Explanation to Section 158BA(2) by the Finance (No.2) Act, 1998 with retrospective effect from 1st July, 1995, there is no dispute now that the block assessment under Section 158BC is in addition to the regular assessment and not in substitution of the regular assessment. There is also not much difficulty in arriving at the view that in the block assessment under Section 158BC only the undisclosed income of the assessee has to be charged to tax at special rate of tax provided in Section 113.

76. After the enactment of the provisions of Chapter XIV-B w.e.f. 1st July, 1995 initially there was a raging controversy as to whether the block assessment would comprise of each and every undisclosed income the AO came across as a result of search proceedings as well as post search enquiry or he had to confine himself only to that undisclosed income which had nexus with evidence found as a result of the search proceedings. Tribunal in its orders in the cases of Sunder Agencies v.Dy. CIT (supra); Indore Construction (P) Ltd. v. Asstt. CIT (supra); Essem Intra-Port Services (P) Ltd. v. Asstt. CIT (2000) 68 TTJ (Hyd) 103 : (2000) 72 ITD 228 (Hyd); Monga Metals (P) Ltd. v. Asstt. CIT (2000) 67 TTJ (All) 247; Tarun Goel v. Asstt. CIT (2000) 112 Taxman 77 (Chd)(Mag); A. Sadasivam v. Asstt. CIT (AT) and Ms.

Pooja Bhatt v. Asstt. CIT (2000) 66 TTJ (Mumbai) 817 : (2000) 113 Taxman 44 (Mumbai) (Mag) held that the computation of undisclosed income of block period in a block assessment must be related to evidence found as a result of search proceedings. The same view has been taken in various High Court judgments viz., N.R. Paper and Board Ltd. v. Dy. CIT (supra); CIT v. Shambhulal C. Bachkaniwala ; CIT v. Vinod Danchand Ghodawat (supra); CIT v.Rajendra Prasad Gupta (supra); Bhagwati Prasad Kedia v. CIT ; CIT v. Dr. M.K.E. Memon ; CIT v.Smt. Usha Tripathi (supra); CIT v. Shamlal Balram Gurbani and CIT v. Ravi Kant Jain (supra).

77. As a matter of fact the debate as to whether the computation of undisclosed income in an order under Section 158BC should be restricted to the undisclosed income discovered as a result of search only stands already concluded by the amendment to Section 158BB by the Finance Act, 2002 with retrospective effect from 1st July, 1995. Prior to the amendment the provisions of Section 158BB(1) stood as under: 158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the AO....

After amendment with retrospective effect the provisions of Section 158BB(1) are required to be read as under: 158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence....

78. It would be seen that the Finance Act, 2002 has with retrospective effect from 1st July, 1995 added the words "and relatable to such evidence". Any doubt in this regard now stands dispelled by the legislative action itself that the undisclosed income has to be computed on the basis of evidence found as a result of search and/or other materials or information relatable to such evidence. Thus the legislature decided to give statutory recognition to the preponderance of judicial opinion in various Tribunal decisions and High Court judgments enumerated by us in para 77. At the same time it is of importance to bear in mind that from the various decisions of Tribunal and the judgments of Hon'ble High Courts enumerated by us in para 77 above, it cannot be concluded that "undisclosed income" to be computed under the provisions of Section 158BC should be confined to evidence found during the course of the search. Even after the amendment by the Finance Act, 2002 with retrospective effect from 1st July, 1995 the doors have been kept ajar to let in other materials or information gathered by the AOs during the course of post search enquiry, but such other materials or information as now clearly mandated by the legislature must be relatable to evidence found as a result of search.N.R. Paper and Board Ltd. v. Dy. CIT (supra) Hon'ble Gujarat High Court held that a block assessment under Section 158BC does not once and for all denude the AO of all powers that he has in relation to assessment years falling in the block period and an assessee does not acquire by virtue of block assessment under Section 158BC any immunity against discovery and assessment of some further undisclosed income found in relation to the block period subsequent to block assessment under Section 158BC. The Hon'ble High Court observed, "The essence of the special procedure of Chapter XIV-B is to provide for an assessment of the income detected as a result of the search without affecting the regular assessments made or to be made." 80. In the case of CIT v. Rajendia Prasad Gupta (supra) the Hon'ble Rajasthan High Court have explained the gamut of block assessment in the following words: We are of the opinion that so far as the contention of learned Counsel for the appellant that the AO has necessary jurisdiction to resort to best judgment assessment in proceedings under Section 158BB, the correctness of it cannot be doubted. However, under the scheme of the provisions for block assessment, it is apparent that it relates to assessment of 'undisclosed income' of the assessee excluding the income subjected to regular assessment in pursuance of the returns filed by the assessee for such period. It is also apparent from the perusal of Section 158BB that the returns are also required to be filed in pursuance of the notice under Section 158BC(a) and the assessment is to be framed on that basis in the light of material that has come into possession of the assessing authority during the course of search which is the foundation of the proceedings. That being so, the correctness or otherwise of the returns filed in pursuance of the notice under Section 158BC(a) has to be examined with reference to the material in the possession of the assessing authority having nexus to assessment of 'undisclosed income' which is with the assessing authority, and premise of such proceedings. If the returns filed by the assessee do not accord with the materials which are already in the possession of the authority, it can be estimated to the best judgment by the assessing authority on the basis of the material in his possession. However, the assessing authority is not conferred with power to make estimation of income de hors the material in his possession, while making regular assessment order under Section 158BB. It has to be borne in mind that proceedings under Sections 158BB and 158BC are that of undisclosed income. Therefore, the proceeding carries with it a presumption that returns filed in pursuance of such proceedings are of undisclosed income and not necessarily in accordance with the books of account. Its verification has to be searched outside regular books with reference to material that has been found during search. That makes it imperative to adjudicate the return with reference to material that has come in the possession of the assessing authority during the course of search proceedings and on which basis the belief about the existence of undisclosed income is entertained by the assessing authority inviting invocation of Sections 158BB and 158BC. The enquiry into the correctness of such returns with reference to material so found has nexus with the object of the special provisions, to adjudge whether the assessee is still honestly disclosing his income correctly after incriminating material has been found in the possession of the Revenue authority before such returns can be rejected and thereafter to frame assessment estimating the income liable to tax to the best of judgment on the basis of the material that is available with him.

81. In the case of Bhagwati Prasad Kedia v. CIT (supra), the Hon'ble Calcutta High Court has observed as under: On a composite reading of the said three parts of the Explanation, it is crystal clear that the legislature thought it fit to make a distinction between the block assessment and the regular assessment.

As has been held by the Division Bench in Dy. CIT v. Shaw Wallace and Co. Ltd. that there are three types of income within the meaning of the said Act of 1961, i.e., incomes which are offered for taxation, incomes which are shown in the return but deductions have been claimed wrongly and undisclosed income. The AO while dealing with regular assessment is free to examine the veracity of the return as well as the claims made by the assessee with regard to exemption and/or deduction. Those can be considered under Section 143(3) of the said Act of 1961, whereas the third income being 'the undisclosed income' is taxed and by way of block assessment resulting in search and seizure. Such block assessment is made under Section 158BA. The logic behind the two different modes of assessment, according to us, is that concealment of income and claiming deduction or exemption of taxes in respect of a disclosed income cannot be treated at par. The former is an offence which goes to the root of the matter and the other is on the basis of the causes shown by the assessee where the AO is free to accept the justification shown or reject the same. The said two types of cases cannot be treated at par.

82. In the case of CIT v. Dr. M.K.E. Memon (supra) the assessee, a doctor by profession, had income mainly from examination fee charged for issuing medical fitness certificates for candidates going to Gulf countries. On 11th Dec., 1996 there was a search under Section 132 of the Act and during the search registration books were seized for the period November, 1993 onwards. It was found that the fees recorded in the seized registration books exceeded the fees reflected in the cash book. In the block assessment return the assessee offered undisclosed income of Rs. 75.60 lakhs which included Rs. 13.80 lakhs for the period prior to November, 1993. In respect of the period November, 1993 to December, 1996 for which the registration book was found, the assessee made disclosure of Rs. 53.22 lakhs. The AO made assessment for the entire block period at Rs. 2.33 crores. He assessed a sum of Rs. 1.04 crores for the period prior to November, 1993 and Rs. one crore for the period November, 1993 to December, 1996. During the course of appellate proceedings the assessee argued that the AO was not right in estimating the undisclosed income for the period for which no registration book indicating undisclosed income was found. The question that arose was whether the AO was right in estimating the undisclosed income by applying the post 1993 weighted average rate of income to the period April, 1986 up to November, 1996. On these facts the Hon'ble Bombay High Court held as under: We agree with the finding of fact recorded by the Tribunal. While estimating the undisclosed income under Chapter XIV-B, the AO cannot apply a rule of thumb. The AO cannot estimate the undisclosed income on an arbitrary basis. We cannot lose sight of the fact that the assessee is a professional. It is highly improbable that his professional income remained constant from 1983-84 (when he was put on the panel) right up to 1996. It is highly improbable that the fees which he was charging in 1993 were the same also during the period 1984, up to November, 1993. We agree with the contention advanced on behalf of the Department that in matters under Chapter XIV-B the AO is required to estimate the undisclosed income. We agree with the contention of the Department that this estimation involves guess work. However, the AO under Chapter XIV-B cannot act arbitrarily while estimating the undisclosed income. In the present case, the AO has not considered the adverse impact of the Gulf war.

In the present matter, the AO has not considered the fact that the fees of the professional in the ordinary course could not have remained static for the entire period commencing from 1st April, 1986, to 11th Dec., 1996. The AO has also not considered that the assessee used to take a deposit of a fixed amount from each candidate. That on screening, if the assessee found the candidate to be unfit he used to retain Rs. 100 and return the balance amount. It is pointed out to us that if on a preliminary examination a candidate was suffering from a serious ailment then there was no necessity of the candidate undergoing further tests and in which event the assessee used to retain Rs. 100 and return the balance amount. None of the explanations have been considered by the AO and, therefore, the Tribunal held that the estimation of income by the AO was without any evidence/basis. This is a pure finding of fact. We also agree with the said finding.

83. In the case of CIT v. Ravi Kant Jain (supra), the assessee was engaged in the business of earning commission for making arrangements for hiring out or letting out properties and from purchase and sale of immovable properties. During the course of search proceedings certain documents and books of account of the assessee were seized. As the AO was of the view that these materials were of complex nature, he appointed a firm of chartered accountants as special auditors in terms of the order under Section 142(2A) of the Act. The special audit was completed and report was submitted to the AO. The AO was of the view that income of the assessee was to be taxed as business income and not as capital gains, as claimed by the assessee. Accordingly, block assessment was made. On appeal to the Tribunal, the Tribunal held that it was a case of mere change of opinion not relatable to any seized material. On further appeal before Hon'ble Delhi High Court, the Hon'ble Court observed that the AO was considering to assess income which had been hitherto returned under a particular section under a different head of income., On these facts the Hon'ble Delhi High Court held as under: In other words, he was proceeding with the scope of the assessment and was not really addressing himself as to the scope of exercising jurisdiction under Chapter XIV-B and Section 158BA. The Tribunal, on analysis of the materials placed before it, has recorded the following finding: In the case in hand admittedly undisclosed income is not on the basis of any search material but on the basis of change of opinion, particularly on the basis of the report of the special auditors, who had given a different colour to the existing facts which stood assessed by the IT authorities in the earlier assessment orders.

The admitted position before the Tribunal was that the undisclosed income was not determined on the basis of any search material. That being the position, the Tribunal was justified in its view that Section 158BA had no application to the facts of the case.

papers marked as A3, A4 and A6 were found and seized during the course of search proceedings. These loose-sheets indicated undisclosed sales for three months from 3rd Sept., 1996 to 4th Dec., 1996. On the basis of the said loose sheets a peak investment of Rs. 40,14,806 could be estimated. However, based on this document the AO proceeded to assess undisclosed turnover of the assessee for the entire block period and an addition of Rs. 3.40 crores was made. On these facts Hon'ble Bombay High Court held as under: It is well settled that in cases where material is detected after search and seizure operations are carried out, the AO is required to determine the undisclosed income. In such cases additions are generally based on estimates. In matters of estimation some amount of latitude is required to be shown to the AO particularly when relevant documents are not forthcoming. However, it does not mean that the AO can arrive at any figure without any basis by adopting an arbitrary method of calculation. In the present matter, A3, A4 and A6 nowhere records the turnover of the assessee as found by the Tribunal and yet on the wrong basis of the incoming and outgoing cash transactions, the AO has arrived at the turnover. Moreover, the peak investment was Rs. 40,14,806 for three months. However, there is no material seized to justify any figure to be included for a period earlier to the said period of three months. In the circumstances, the Tribunal has recorded a finding of fact and has held that the addition of Rs. 3.40 crores was totally unjustified.

The entire finding of the Tribunal is based on the facts. No substantial question of law arises. Hence, the appeal is dismissed.

85. In the case of CIT v. Gom Industries Ltd. a sum of Rs. 14,08,580 Was assessed as undisclosed income within the meaning of Section 158B(b) on the ground that the assessee's transaction of purchase and lease of gas cylinders was bogus. The Tribunal found that the assessee had recorded the transaction in its books of account.

According to the assessee he was under a bona fide belief that the transaction with regard to supply of gas cylinders was a genuine transaction. The Tribunal recorded that if the transaction had been bogus, the assessee would not have deposited premium towards insurance policy and the payments by cheques to the supplier of the cylinders would not have been made. It appeared that there was, some collusion between the supplier of the cylinders M.M. Industries and the lessee Miga Gases Ltd. On these facts the Tribunal held that there was no concealment in the manner provided under Section 158B(b) of the Act, more so when the assessee had not claimed depreciation on gas cylinders. On Revenue's appeal Hon'ble Madhya Pradesh High Court held that the finding of fact recorded by the Tribunal called for no interference.CIT v. Elegant Homes (P) Ltd. (supra) there was a search at the residential and business premises of the assessee on 9th Nov., 1995. The assessee had not filed any returns of income prior to the search. It was found that there were deposits of Rs. 41,400 in the names of various parties in the regular books of account of the assessee which were seized during the course of search. During the course of proceedings under Section 158BC the assessee could not establish the genuineness of the credits. The Tribunal, however, deleted the addition on the ground that the entries had been shown in the regular books of account and, therefore, could not be said to be undisclosed income of the assessee. On Revenue's appeal Hon'ble Rajasthan High Court held as under: Admittedly, Rs. 41,400 had never been offered for tax and it was never shown as income of the assessee, the entries of these deposits were found in the regular cash books maintained by the assessee.

When the entries were found in the books of the assessee, the assessee could not explain the genuineness of the deposits, this amount was never disclosed, it is an undisclosed income of the assessee. The Tribunal has committed an error in holding that as the entries were found in the regular books of account, therefore, it cannot be treated as undisclosed income.

The view is contrary to the provisions of Chapter XIV-B of the IT Act, 1961. In Chapter XIV-B of the Act, special provisions for assessment in search cases have been given and if any amount of income has not been taxed and during the course of search, if some 'undisclosed' income is found on the basis of material seized, that should be treated as undisclosed income as per the scheme of special assessment under the aforesaid Chapter.

Similar view has been taken by Hon'ble Rajasthan High Court in the case of CIT v. Ajay Kumar Shaima where the assessee had not filed the returns of income that had already fallen due until the date of search proceedings. On these facts Hon'ble Rajasthan High Court held that merely because some entries in the books of account had been shown that did not prohibit the AO to tax bogus cash credits/undisclosed income in the block assessment.

87. In the case of Smt. Harbans Kaui Bhatia v. CIT a search was conducted at the residential premises of the husband of the assessee on 1st Feb., 1996. During the course of search it transpired that the assessee had purchased certain land and sold the same on 2nd Jan., 1996 for Rs. 29,60,000 and not for Rs. 9 lakhs as mentioned in the sale deed and received by cheque. On 13th Dec., 1996 the assessee filed return of income for asst. yr. 1996-97 and disclosed her 1/3rd share of Rs. 20 lakhs received in cash i.e. Rs. 6,66,666. Thereafter the AO issued on 8th Aug., 1997 a notice under Section 158BD. The assessee contended in the proceedings under Section 158BD that the consideration was received on sale of capital asset for which the assessee was liable to pay capital gains by paying tax at the rate of 20 per cent. The same could not be charged at the rate of 60 per cent under the provisions of Section 113 of the Act applicable to block assessment proceedings. Both the learned AO as well as the Tribunal rejected this contention of the assessee. On these facts Hon'ble Madhya Pradesh High Court held as under: Conjoint reading of the aforesaid two sections would, thus, make it manifestly clear that, in order to take any income or transaction out of the clutches of the block period, it is for the assessee to prove to the satisfaction of the AO that a particular income/transaction had already stood recorded in the books of account/documents in the normal course of business by the assessee prior to the date of search or their requisition. What is, therefore, material is its disclosure in the books of account and secondly, such disclosure should be prior to the date of search in point of time. In such circumstances, if an assessee has not filed his/her regular return under Section 139(1), even then it would not make much difference because the assessee has already taken care to disclose the income/transaction in his/her books of account the day it was required to be entered in accordance with the accountancy system. It is, as already mentioned supra, subject to the condition that entry must be made prior to the date of search and not subsequent to it. The object underlined in Sub-section (3) is very clear. If the intention of the assessee is to pay normal rate of tax, he would disclose all the income/transaction in his/her books of account. But if his/her intention is to evade the tax, then he/she would not disclose the income/transaction in his/her books of account thereby will enjoy the income without paying any tax on it.

It is only when he/she is subjected to search operation, he/she would make entry in his/her books subsequent to date of search to avoid higher rate of tax at 60 per cent. Such entry i.e. an entry made subsequent to the date of search is of consequence. It is for this reason that the words used in Section 158B(b) 'would not have been disclosed' are very significant. This clearly has a nexus with the intention of the assessee in dealing with his/her property.

The Hon'ble High Court, therefore, held that it was a clear case of income from undisclosed sources that would not have been disclosed for the purposes of the Act, the income in question had to be taxed as per the provisions applicable to block assessment read with Section 113 of the Act treating it as an undisclosed income.

88. We have in the foregoing paras enumerated the judgments of Hon'ble High Courts that in our opinion have the special bearing on the question referred to us by the Hon'ble President. At the outset it may be stated that there is no force in the argument that not only the evidence but material and information available with the AO should have been found during the course of the search. The argument is contrary to the plain language of the provisions of Section 158BB(1) that clearly lay down that undisclosed income of the block period is to be computed not only on the basis of evidence found as a result of search but on the basis of such other materials or information also as are available with the AO and relatable to such evidence. The insertion of the words "relatable to such evidence" by the Finance Act, 2002 with retrospective effect from 1st July, 1995 is intended to restrict the scope of material or information that may be relied upon by the AO because the same has to be relatable to evidence found as a result of search in the first instance. Various judgments of Hon'ble High Courts and decisions of various Benches of Tribunal have by and large accepted the position that the evidence found as a result of the search need not be conclusive evidence. If that were so, there was no need to further add such other material or information as are available with the AO.It, therefore, follows that as long as there is an evidence to the undisclosed income of the assessee, that would be sufficient to clothe the AO with the powers to add to such evidence any further material or information that may be pertinent or necessary to reach a logical conclusion but there has to be a certain and specific nexus between the evidence found as a result of search and undisclosed income proposed to be assessed in the block assessment under Section 158BC. At the same time it is not correct position in law to hold that conclusive evidence of undisclosed income should be found during the course of search action itself and nothing further can be added or supplemented by way of subsequent enquiry. This aspect has been dealt with in the order of the Third Member in the case of Npai Drugs (P) Ltd. v. Dy. CIT (supra) in the following words: In my humble opinion, it is not necessary that during the course of the search foolproof material/evidence indicating undisclosed income should be found. That is not the true interpretation of the judgment of the Hon'ble jurisdictional High Court in the case of Ravi Kant Jain (supra). As long as during the course of the search certain material/evidence that may lead to a legitimate enquiry into the genuineness of the transaction alleged by an assessee and undisclosed income is detected as a result of such legitimate enquiry during the course of proceedings under Section 158BC it would amount to income computed, 'on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such eyidence' within the meaning of Section 158BB(1) of the Act. It is important to bear in mind that computation of income under Section 158BC to be made not exclusively on the basis of evidence found as a result of search but such other materials or information also available with the AO relatable to that evidence.

Indeed there should not be any doubt on this aspect because the provisions of Section 158BB(1) clearly lay down that the undisclosed income of the block period shall be computed on the basis of evidence found as a result of search and such other materials or information as are available with the AO and relatable to such evidence. Thus, an assessment under Section 158BC is required to be made both on the basis of result of search as well as such post-search enquiry and other proceedings that are in the nature of a logical consequence of the evidence found as a result of the search.

89. The provisions of Chapter XIV-B relate to assessment of undisclosed income. For that purpose the provisions of Section 158BC lay down the procedure. Provisions of Section 158B(b) define what is undisclosed income and the provisions of Section 158BB lay down how undisclosed income has to be computed. The provisions of computation has two limbs, viz., (1) evidence found as a result of search, and (2) such other materials or information as are available with the AO and relatable to evidence found as a result of search.

90. Before proceeding to the second limb it would be worthwhile to ponder upon what constitutes "evidence found as a result of search"? During the course of a search proceeding whether business premises or residential premises everything kept there, in open or hidden, is supposed to come to view. Can this entire mass of what is physically found at the searched premises be said to be evidence found as a result of search. During the course of carrying out of business or profession or any other source of income every person has to maintain some record of his activities. In the case of a businessman a huge mass of records in the ordinary course of carrying on of the business, such as books of account, bank account, stock registers, bills and vouchers and several other documents must be found. Whether all the particulars and information contained in such record can be made basis of computation of income of the block period? That aspect has to be answered bearing in mind that under Section 158BB it is computation of undisclosed income of the block period and not the entire income of the block period. This brings us to the provisions of Section 158B(b) that clearly define "undisclosed income" as including any money, bullion, jewellery or other valuable articles or thing or any income which has not been or would not have been disclosed for the purposes of the Act.

The words, "which has not been or would not have been disclosed" are the key words that control assessment of undisclosed income as a result of search. It, therefore, follows that it is not every article or thing or every piece of information found during the course of search that can be called "evidence found as a result of search". It is only that which has not been or would not have been disclosed alone constitutes evidence found as a result of search. Thus, at every point where any money, bullion, jewellery or other valuable articles or thing is found during the course of search the question is required to be answered, does it constitute what has not been or would not have been disclosed for the purposes of the IT Act. There is not much problem in arriving at what has not been disclosed in relation to the returns of income that have already been filed as on the date of the search in question.

If any money, bullion, jewellery or other valuable article or thing or any income is required to be disclosed for the purposes of IT Act in any return of income but not disclosed, the same would constitute basis for "undisclosed income". More difficulty arises in cases where the returns of income have not been filed but the due date for filing the return of income has not expired or where the return of income itself has not fallen due. In such cases it is not a question of what has not been disclosed but of what would not have been disclosed for the purposes of the Act. Answer to that question would depend on the facts and circumstances of each case.

91. We now turn to the second limb viz., "such other materials or information as are available with the AO and relatable to such evidence". It is not every material or information available with the AO that can form basis of computation of undisclosed income of the block period but only the materials or information that is relatable to evidence found as a result of search. At this stage it is important to notice the different expressions employed by the statute. It is "evidence" that has to be found as a result of search in the first instance. Thereafter it is only "materials" or "information" available with the AO. The expression "materials" is of much wider import than the expression "evidence". It can comprise of what can be considered an evidence as well as much more. It is worthwhile to compare this phraseology with that of Section 143(3). The phraseology employed in Section 143(3) is, "after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points, and after taking into account all relevant material which he has gathered, the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee...." It is striking that what an assessee is required to produce on his own or on requisition by the AO is "evidence"; whereas what the AO has to gather is "materials".

The same distinction has been maintained in the provisions of Section 158BB(1). What has to be found as a result of search is "evidence" and thereafter the AO may gather relevant "materials" or "information". In the case of Addl. CIT v. Jay Engg. Works Ltd. , Hon'ble Delhi High Court has explained this distinction in the following words: The ITO and certain other authority functioning under the IT Act have a dual character. They are both agencies of investigation made into the incomes of assessees and they are also quasi-judicial authorities assessing the liabilities of the assessees to payment of income-tax. Under Section 142(2) of the Act the ITO may make such enquiry as he considers necessary for the purpose of obtaining full information in respect of the income or loss of an assessee. Under Section 143(3) of the Act, the ITO does not only hear such evidence as the assessee may produce or as he may require to be produced, but also takes into consideration 'all relevant material which he has gathered' for the purpose of making an assessment. While the word 'evidence' may recall the oral and documentary evidence as may be admissible under the Indian Evidence Act, the use of the word 'material' shows that the ITO not being a Court can rely upon material which may not be strictly evidence admissible under the Indian Evidence Act for the purpose of making an order of assessment. Courts often take judicial notice of certain facts which need not be proved, while administrative and quasi-judicial authorities can lake 'official notice' of wider varieties of facts which need not be proved before them. Thus, not only in respect of the relevancy but also in respect of proof the material which can be taken into consideration by the ITO and other authorities under the Act is far wider than the evidence which is strictly relevant and admissible under the Evidence Act.

92. It, therefore, follows that what constitutes admissible evidence, material or information for the purpose of Section 143(3) does equally constitute admissible evidence, material or information for the purposes of computation of undisclosed income in block assessment proceedings under Section 158BC.93. The Courts have consistently held that the proceedings for assessment before the AO are not judicial proceedings though the same can be described as quasi-judicial in character. The AO is not a Court though he has some powers as are vested in a Court for the limited purposes mentioned in Sections 131 and 136 of the Act. S.V. Kondaskai, Official Liquidator v. V.M. Deshpande, ITO Engg. Works Ltd. (supra); Indian and Eastern Newspaper Society v. CIT and Dr. Baliram Waman Hiray v. Mr. Justic B. Lentin . As a result, the AO may draw inferences and may consider evidence which may not be justified or be wholly inadmissible under the Evidence Act or in a Court of law. In the case of Seth Gurmukh Singh v. CIT (1944) 12 ITR 393 (Lahore), Full Bench of Hon'ble Lahore High Court considered this aspect at length. It was held: Under the law as it stands, while proceeding under Sub-section (3) of Section 23 the ITO is bound to hear such evidence as the assessee may produce in support of his return and, if, after hearing the evidence so produced, he still thinks that he is not satisfied on any particular point, he can require the assessee to produce further evidence on that point. To that extent be may be taken to proceed quasi-judicially, but his quasi-judicial functions begin and end here. If not satisfied with the character of the evidence produced by the assessee, he is not bound to lead evidence on his own account with a view to rebutting it. He may gather information in any manner he likes and utilise it against the assessee even if it does not in all respects satisfy the requirements of the Indian Evidence Act.

The very nature of the proceedings conducted by him necessitates the use of such media for collecting information as he may not like to disclose to the assessee, and he is perfectly within his right if on enquiry by the assessee he refuses to disclose the source of his information. But if he makes up his mind to reject the evidence of the assessee on any grounds which appeal to him to be sufficient for that purpose, it is but fair and just that he should acquaint the assessee with those grounds so as to enable him to disabuse his mind, if possible, by explaining them away as baseless or untenable.

It is, however, impossible to hold that if once the assessee under Sub-section (3) of Section 23 leads evidence, whether reliable or unreliable or produces any document, whether genuine or fictitious, the ITO must base his decision on that evidence unless he is in a position to bring on the record any definite evidence to the contrary.

94. Reference in this respect may be made also to judgments in Gopinath Naik v. CIT (1936) 4 ITR 1 (All); Gunda Subbayya v. CIT (1939) 7 ITR 21 (Mad); Anmj Naiain Dass v. CIT ; Laxmi Co. v. CIT Mohan Saha v. CIT (1964) 52 ITR 231 (Assam); Devidas Madho Prasad v.CIT ; Motipui Zamindaii Co. (P) Ltd. v. Agil. ITO (1972) 83 ITR 778 (Pat); State Bank of Patiala v. Union of India ; IS Parkai v. V.B. Palekar ; Miiganka Mohan Sui v. CIT and CIT v. East India Lamp and Components is necessary is that the AO should have material upon which to base the assessment. Such material may be distinguishable from evidence both direct and circumstantial. That is not to say that the AO can exercise his powers in an arbitrary manner as Rankin C.J. pointed out in the case of Haimukhiai Dulichand v. CIT 3 ITC 198 (PC) though the AO is not a Court and to some extent a party or Judge in his own case, fundamentally he must proceed in a judicial manner and come to a judicial conclusion upon properly ascertained facts. As pointed out by Hon'ble Supreme Court in the case of CIT v.Simon Carves Ltd. it is not as if the AO should exercise his powers only in a manner "beneficial to the Revenue and adverse to the assessee. He should arrive at his decision in judicial spirit on the basis of sound reasoning. He may not act on suspicion or conjectures or pure guess. In the case of Dhakeshwari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC), Hon'ble apex Court observed as under: As regards the second contention, we are in entire agreement with the learned Solicitor General when he says that the ITO is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a Court of law, but there the agreement ends; because it is equally clear that in making the assessment under Sub-section (3) of Section 23 of the Act, the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under Section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. CIT. In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions.

Firstly, it did not disclose to the assessee what information had been supplied to it by the Departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case.

The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the ITO and the Tribunal, seems to be based on surmises, suspicions and conjectures.

Reference in this respect may also be made to the judgments in the case of Omar Salay Mohamed Salt v. CIT ; Umachaian Shaw and Bros. v. CIT and a host of High Court judgments thereafter. In nutshell, while the AO is not bound by rules of evidence, he is bound by the principles of natural justice and good conscience. He has to base his findings on cogent materials or evidence and not on suspicion or guess work.

95. We have hereinabove referred to and/or cited extracts from some of the myriad judgments of Courts and Tribunal in an attempt to cull out an answer to the question referred to us by the Hon'ble President i.e.

"What is the meaning and scope of 'such other materials or information as are available with the AO and relatable to such evidence' appearing in Section 158BB(1) of the Act." In our humble opinion there should be, in the first instance, an "evidence" found as a result of search or requisition of books of account or other documents that may constitute the basis of computation of undisclosed income. That "evidence" may not be conclusive to arrive at the finding of undisclosed income and the AO may supplement it with "materials" or "information" that he may gather or are otherwise available with him at the time of computation of undisclosed income of the block period. The expression "relatable" appearing in Section 158BB(1) permits the AO to bring material on record as may be required for computation of undisclosed income in relation to "evidence" found as a result of search. All materials or information gathered by the AO or received by the AO in the process of computation of undisclosed income on the basis of "evidence" would constitute materials or information "relatable to such evidence". For example, if during the course of the search an evidence is found to the effect that the assessee had income from a source not disclosed by the assessee, all further materials or information gathered by the AO in regard to that source of income and for quantification of the assessee's income from that source would constitute materials or information relatable to such evidence. Similarly, if for example, during the course of search an evidence is found as to inflation of a particular item of expenditure, the materials or information subsequently gathered by the AO in order to find out the other instances of inflation of expenditure would be materials or information relatable to such evidence. In other words, if during the course of search only a part or portion of picture is seen, the material or information gathered by the AO to reasonably reconstruct the whole picture would be materials or information relatable to such evidence.

It, therefore, follows that while it is not open to the AO to investigate new items of undisclosed income, he is entitled to collect further materials or information so as to bring to the logical conclusion evidence found as a result of search. The expression "materials" or "information" are of wider import than "evidence" and as far as the admissibility of such materials and information is concerned, there is no distinction to be drawn between the assessment under the regular provisions of the Act and block assessment. The burden of proof, however, on the AO may be greater in block assessment proceedings than in regular assessment proceedings, in view of the fact that while regular assessment is made of income, block assessment is made of undisclosed income. While completing the block assessment the AO can include in his computation of undisclosed income only that undisclosed income that the assessee did not disclose in any income-tax proceedings the assessee was bound to do so or the income that the assessee would not have disclosed in the normal course if there was no search. While relying upon any materials or information as a supplement to the evidence found as a result of the search the AO is not bound by technical rules of evidence and, therefore, he may take into account facts and circumstances that may not be admissible under Indian Evidence Act and he may arrive at his finding not on the basis of any direct evidence of undisclosed income but on the basis of cumulative effect of all the facts and circumstances relating to the proceedings before him.

96. We now proceed to adjudicate the appeal before us. The question referred to us by Hon'ble President is of special significance for disposal of the present appeal. The thrust of lengthy arguments of the assessee's counsel as well as written submissions filed by them is that the AO has based his findings on materials or information that were either not admissible in law or could not be said to relatable to any evidence found during the course of the search in the case of the assessee. First and foremost argument of the assessee in this behalf is that entire post-search enquiry made by the AO should be ignored and only what has been found during the course of search in the case of the assessee should form the basis of block assessment. As we have seen there is no force in the argument that all material or information gathered by the AO other than during the course of search should be excluded for that reason alone. We, therefore, reject the contention of the assessee that for the purpose of block assessment the AO has to remain confined to evidence found during the course of the search. At the same time we accept that any undisclosed income discovered by the AO entirely on the basis of material or information gathered by him on his own without there being any relationship whatsoever with an evidence found as a result of search, cannot form part of undisclosed income to be brought to block assessment under the provisions of Section 158BC. With these remarks we proceed to examine various items of undisclosed income assessed by the learned AO in the impugned order as to whether or not the same can be treated to be based on evidence found as a result of search and other materials or information relatable to such evidence. First and foremost in this regard is assessment of undisclosed income made by the AO from asst. yr. 1993-94 to asst. yr. 1997-98 on account of the assessee having carried on the business of IMFL and country liquor. The learned AO has annexed to impugned block assessment order Annex. 7 enlisting documents related to business found at the residence of the assessee. These included partnership deeds of the firms, such as M/s Mittal & Co., M/s Shankar Lal & Co., M/s Gupta & Co., M/s Chander Bhan Om Prakash & Co. and M/s Ashok Kumar & Co. According to the learned Counsel for the assessee none of these partnership deeds mentioned the assessee as either partner or proprietor of those firms. Hence discovery of these partnership deeds at the residence of the assessee did not amount to an evidence found at the residence of the assessee. According to the AO discovery of so many partnership deeds at the residence of the assessee was a pointer towards the ownership interest of the assessee in liquor business of those firms. Non-mention of the assessee's name in those deeds was only to be expected because of the fact that the licenses for the various kinds of liquor vends in the region were almost as a rule being obtained in the names of partnership firms that served merely as a front to conceal the identity of the real person(s) carrying out the business. We have in the earlier parts of this order discussed at length as to set forth the legal position in relation to what would constitute an evidence in a block assessment proceeding. At the cost of repetition, we may point out that "evidence" within the meaning of Section 158BB(1) is not required to be conclusive evidence and the same may be supplemented by such material and information that would be wholly inadmissible under the provisions of Indian Evidence Act. We have also pointed out that in income-tax proceedings it is generally not possible to expect the AO to lay his hands on direct evidence of undisclosed income and his inferences in that behalf are to be drawn on the cumulative effect of various facts and circumstances gathered by him. We are of the view, more so having regard to the nature of income-tax proceedings as distinguished from proceedings in a civil or criminal Court of law, that the presence at the residence of assessee of so many partnership deeds of the so-called concerns, which successfully obtained excise licenses worth crores of rupees, coupled with the whole mass of details as enumerated by AO in Annex. 7, definitely constituted an evidence found as a result of search in the case of the assessee that served as a pointer to the assessee's interest as a businessman carrying on the business of purchase and sale of IMFL and country liquor.

97. Apart from the partnership deeds as mentioned in the foregoing para a plethora of other material was found at the residence of the assessee e.g. a handwritten document containing names and father's names of persons who were mentioned as partners in the partnership deeds relating to M/s Mittal & Co. and M/s Shanker Lal & Co. The AO also found photocopies of licenses issued by Excise Department, Hissar and original challans of licence fee running into crores paid to Excise Department for obtaining licences. Besides, a large number of documents relating to correspondence with Excise Department, police cases, Court cases relating to the firms carrying out liquor business were found at the residence of the assessee. Copies of various announcement of excise policy, news items, copies of various maps of godowns and various vends were also found at the residence of the assessee. From the residence of the assessee a stock chart and the working of stock done by the assessee himself in his own handwriting were found. The assessee calculated stock position as on 14th June, 1996 with respect to country liquor vends. There were 7 truckloads available, 9 truckloads were due to be received from Yamunanagar distillery and 7 truckloads were to be received from Hissar. That stock was required to be sold by 30th June, 1996 being the last date of licence. There were other documents found wherein the stock position of various liquor vends on various dates were worked out in the handwriting of the assessee himself. We see substance in the contention of the learned AO that discovery of all these documents during the course of search at the residential premises of the assessee was evidence towards the assessee carrying out liquor business.

98. Besides, the AO has also relied upon the various facts found during the course of the search. On search of the assessee's residence No.835/14, Yeti Nagar, Hansi, the assessee was found living in luxury in a big and well furnished house. There were six air-conditioners, colour televisions, VCR, tennis table, fridge, sofas, telephones etc. The assessee was owning a N-118 car for his personal use for which purpose a driver had been employed. The assessee's children were studying in the most expensive schools. There were other documents seized from the residence of the assessee pointing to the assessee having given loans of huge amounts to several parties. These specific aspects found during the course of the search also put the assessee in the light of an affluent businessman. During the course of search statements of a number of persons were recorded. On the date of search officers of the search party went to all the vends of Hansi, Jind, Bawani Khera and Tosham. Statements of various salesmen working in those vends were recorded on oath. The salesmen/employees present at various vends at Hansi and Narnaund categorically stated that the assessee was their employer and the real owner of vends. They also narrated various aspects of the business.

99. In view of discussion in the foregoing paras, we are unable to subscribe to the argument of the assessee that the assessment of income from liquor business in the impugned order is based on material entirely extraneous to the search in the case of the assessee. We hold that during the course of search at the residence of the assessee and other connected places considerable evidence was found that put the AO on a legitimate course of enquiry in the block assessment proceedings under Section 158BC as to the assessee's undisclosed income earned from liquor business in different assessment years.

100. As to the undisclosed income computed by the AO on the basis of undisclosed investment in an immovable property in the benami name, we have no doubt that the AO's enquiry in this behalf as respects residential house No. 835/14, Yeti Nagar, Hansi is directly related to evidence found as a result of search. The explanation given by the assessee that he was paying a rent of Rs. 400 per month for the house and of the amenities therein was on the face of it unacceptable and called for further enquiry. Various features noted during the course of physical search of the premises pointed to the assessee as residing in the house owned by him. According to the learned AO in the preliminary statement recorded during the course of the search the assessee and his wife denied having any immovable property. It became clear that like liquor business, the assessee had also acquired immovable properties in benami names. Accordingly the AO carried out extensive enquiry and has brought to assessment a number of undisclosed investments in immovable properties made by the assessee in benami names of his wife, his relatives and persons belonging to his home village Dhaneri. The learned AO has, however, not relied upon any seized document or any statement recorded during the course of assessment proceedings or any other informations/material gathered during the course of search proceedings itself and admittedly the enquiries in respect of a number of other immovable properties were made by the AO only during the course of post search enquiry. We shall revert to this aspect and various other additions made by the AO while considering the question of quantification of undisclosed income of the assessee for the block period. Suffice it to state here that as far as the computation of assessee's undisclosed income related to the liquor business carried on by the assessee in various assessment years, we are of the view that ample evidence was found during the course of search itself and, therefore, it cannot be said that the assessment of undisclosed income in that regard is outside the purview of Section 158BC.101. During the course of hearing before us considerable reliance has been placed on behalf of the assessee on the fact that in none of the licences issued by Excise Department for various liquor vends, income from which the learned AO has assessed as undisclosed income in the impugned order, the name of the assessee Shri Mange Ram has ever been mentioned. The learned Counsel for the assessee have argued that the basic evidentiary principle is that oral evidence does not generally negate the primary documentary evidence especially when the documentary evidence is an official record. The partnership deeds which were found during the course of search proceedings also did not indicate anywhere that the assessee was a partner. The security deposit receipts for licence fee challans also did not indicate the assessee as the payer.

There was not a single document in the name of the assessee as an owner. Reliance has been placed by the learned Counsel on the provisions of Section 132(4A) of the Act also to the effect that where any books of account, other documents, etc. are found in the course of a search, it may be presumed that the contents of such books of account and other documents are true. There was also no proof of the assessee having earned the estimated profits as worked out by the AO. On a careful consideration, we are of the view that too much significance cannot be attached to the names of the persons in whose names licences of various liquor vends for various financial years had been issued by the Excise Department as a result of public auction or otherwise. The case made out by the AO in the impugned order is that the assessee has systematically pursued a strategy to operate from behind the curtains and to put up a facade of some dummy persons being shown as the partners in the official records. Where the case is made out of the assessees having carried out business in benami names the argument that assessee's name does not appear anywhere is hardly a defence. At this juncture it may be pointed out that the AO has recorded the statements of certain officers of the Excise Department with a view to demonstrate that excise records cannot be taken as sacrosanct. At the cost of repetition we may again point out here that in an income-tax assessment proceedings and as we have seen even in the block assessment proceedings under Section 158BC, the AO is not fettered by the technical rules of evidence.

102. During the course of hearing before us it has been vehemently argued on behalf of the assessee that the impugned order under Section 158BC has been made by the AO in collusion with a liquor contractor who was rival of the liquor contractor with whom the assessee was employed.

For that purpose the AO pressurized the witnesses and forced them to tender evidence against the assessee. Suitable statements from Shri Manohar Singh were obtained after promising him favourable treatment in his income-tax assessment proceedings in lieu of his testimony against the assessee. Fact of the matter was that Shri Manohar Singh himself was a liquor contractor. According to the learned Counsel subsequently at the persuasion of the assessee various salesmen, as mentioned in para 54 of the order, filed affidavits retracting from their testimony in the statements recorded by IT authorities. The AO, however, completely ignored those affidavits. Any reliance placed by the AO on the earlier statement of the persons who had filed the affidavits had been completely negated by the affidavits given by those persons and placed on record by the assessee before the AO. On a careful consideration of these arguments of the assessee, we are of the view that the assessee has hardly brought on record evidence or material so as to persuade us that we should ignore the statements as recorded by various IT authorities, on relying upon the subsequent affidavits filed by the assessee. We see considerable force in this behalf in the contentions of the learned CIT-Departmental Representative and the authorities relied upon by her as summarized by us in paras 68 and 69 of this order. It is important to note here that the statements of various persons have not been recorded by a single officer on a particular date at a particular place. These statements have been recorded by several senior officers of Income-tax Department at different places on different dates. The statements have been recorded by the officers empowered under the provisions of the IT Act to record the statements to be used in any income-tax assessment proceedings.

Apart from mere allegation no material has been brought on record to suggest that the various senior officers of the IT Department and the AO in particular, had entered into a conspiracy to frame the assessee.

No evidence has been brought on record apart from self-serving statements of the deponents that the statement given by them on the earlier occasion was under coercion and undue pressure. The learned AO has also commented upon these affidavits in detail in para 85 of the impugned order. Where a statement is recorded under the provisions of law by an officer empowered to record a statement to be used in any proceedings, there is a presumption of the correctness of the contents thereof unless rebutted by sufficient material. In the case of the assessee such sufficient material has not been brought on record. There is ample authority, as enumerated in para 68 of this order that in such circumstances it is open to rely upon the first statement and to ignore the subsequent statement. Further we may mention here that it is not as if the entire case of the AO is based upon these statements alone. In the instant case he has brought on record numerous facts and circumstances and as we have noted earlier the law on the subject is that when several facts and circumstances are brought together each may lend to or subtract from the colour of other facts and circumstances and it is the cumulative weight of all the facts and circumstances and the total picture as emerging that is required to be seen.

103. On a comprehensive consideration of the impugned order under Section 158BC and its annexures, the material relied upon by the AO as referred to in the impugned order and as enumerated in the annexures thereto, on perusal of the paper books we are of the view that viewing the picture in totality, a conclusion can be drawn with reasonable certainty that the assessee Shri Mange Ram was not an employee of any liquor contractor but was a person engaged in carrying on the liquor business in his own right. We have briefly enumerated the basis for such finding given in the impugned order by the learned AO. He has brought on record a mine of facts and circumstances and material to support his findings. The learned Counsel for the assessee has made a valiant attempt during the course of hearing before us to counter many of the facts and circumstances and material relied upon by the learned AO, but, as we have already observed, each fact and circumstance should not be seen in isolation and even if in isolation none of the facts and circumstances may be sufficient to draw an inference against the assessee, cumulative weight and effect of all such facts and circumstances put together may be so heavy as to demolish the assessee's defences. In our considered opinion, the learned AO has brought on record sufficient material to arrive at his finding that the assessee Shri Mange Ram was not an employee but an influential businessman carrying on the liquor trade for a long period. As to the argument of the assessee that in none of the partnership deeds and nowhere in excise records pertaining to various liquor vends the ownership of which is ascribed to the assessee, the name of the assessee has ever been mentioned, the learned AO has explained in detail that auction contracts for sale of liquor in the region were being taken by the people operating behind the scene and men of virtually no means were being "officially" designated as the partners/owner of the liquor vends. This practice had been so widespread that in the Memorandum Explaining Provisions in Finance Bill, 1988 at para 25, the following has been stated: 25. Considerable difficulty has been felt in the past in making assessment of incomes in the case of persons who take contracts for sale of liquor, scrap, forest products, etc. It has been the Department's experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left regarding them or their members after the contract has been executed. Persons have also been found to have taken contracts in benami names by floating undertakings or associations for short periods. Since tax is payable in the assessment years in respect of the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons are not traceable. At the time of assessment in these cases, either the accounts are not available or they are grossly incorrect or incomplete. Thus, even if assessments could be made on ex parte basis, it becomes almost impossible to collect the tax found due, either because it becomes difficult to establish the identity of the persons and trace them or because of the fact that the persons in whose names contracts are taken are men of no means. (1988) 68 CTR (St) 95 : (1988) 170 ITR (St) 187.

104. The learned AO has supported his assumptions in this regard by recording the statements of Shri R.K. Daggar, who was posted as ETO at Hissar from May, 1994 to June, 1996 and Shri Anil Sharma, who was posted as Excise Inspector, Hansi Circle. Both these persons were concerned officers for the period 1994 to 1996. The learned AO also wrote a letter to DETC, Hissar. Particulars of information supplied by them have been discussed by the learned AO and briefly enumerated by us in paras 21 and 22 of this order. During the course of hearing before us the learned Counsel for the assessee has vehemently disputed the reliance placed by the assessee on the results of his enquiry made with the officers of Excise Department. He has argued that those officers changed their tack during the course of cross-examination. He has argued that no person could get entry ticket to the auction without the receipt of Rs. 50,000 in his name. From that it does not follow that the assessee could not enter the auction hall by temporary deposit of Rs. 50,000 in his own name or accompanying the person in whose name the deposit was made. In the initial statements recorded by the AO both Shri R.K. Daggar and Shri Anil Sharma deposed that they personally saw the assessee call the bids on behalf of certain firms at the time of auction at Hissar for financial years 1995-96 and 1996-97. There is no categorical denial of this statement in the subsequent cross-examination. The enquiries made by the learned AO revealed that for financial year 1996-97, security deposit paid to Excise Department in respect of Mittal & Co., Hansi amounted to Rs. 1,38,34,000; for M/s Ved Prakash Darshan Singh & Co., Jind-Rs. 2,41,67,000 and M/s Shanker Lal & Co., Bhawani Khera, Tosham-Rs. 66,83,000. Though such huge amounts were paid to Excise Department at one go for obtaining the contract of liquor vends for financial year 1996-97, no returns of income were filed by any person and nothing much is known of the people who were displayed as partners in the liquor licences go to prove the field reality as described by the learned AO. In such a scenario not much can be made of the fact that in the relevant excise licences the name of the assessee' has nowhere been mentioned. On the contrary in the background of these facts, the fact that during the course of search at the residence of the assessee partnership deeds of various liquor firms, as enumerated in Annex. 12 to the impugned order, have been found assumes considerable significance.

105. Documents found and seized from the residence of Shri Manohar Singh also go a long way to support the case of the AO. During the course of hearing before us the learned Counsel for the assessee argued that those documents having been found and seized from a person other than the assessee, that material could not be utilized without initiation of a separate proceeding under Section 158BD of the Act. On consideration, we do not see much substance in these contentions. The provisions of Section 158BD are intended to apply where the person from whom any books of account, other documents or asset seized during the course of a search is other than the person to whom any undisclosed income is ascribed on account of such seizure and if the AO having jurisdiction over the person searched is also other than the AO having jurisdiction over the persons to whom undisclosed income belongs then certain procedure is envisaged. In the instant case both the assessee as well as Shri Manohar Singh were assessed in the jurisdiction of one and the same AO. The assessee having been himself subject to search operation under Section 132 had already been served with a notice under Section 158BC. Under these circumstances there was no requirement to initiate parallel proceedings under Section 158BD in relation to material seized from Shri Manohar Singh, more so when the AO was already seized with the assessment of the very same undisclosed income on the basis of evidence found as a result of search in the case of the assessee himself. We are not dealing here with a situation where no material at all was found during the course of search in the case of the assessee and the material was found in the course of the search of a person other than the assessee himself. On the facts of the case we see no inhibition to the AO freely drawing on the material found during the course of search at the residence of Shri Manohar Singh. Secondly, the learned Counsel for the assessee strongly argued before us that as the most telling material was found at the residence of Shri Manohar Singh and not at the residence of assessee himself, it was Shri Manohar Singh who should have been held to be carrying on the liquor business in benami names and not the assessee. It was argued that one of the liquor shop premises belonged to Shri Manohar Singh. Having regard to these contentions of the assessee the material found from the premises of Shri Manohar Singh and the inferences drawn by the learned AO therefrom require a close scrutiny. During the course of search at the premises of Shri Manohar Singh cash of Rs. 8,57,490, jewellery 80 grams and a number of loose sheets comprising daily sales report, summary sheets and other papers relating to liquor vends at Hansi and various other places, such as Bhawani Khera/Tosham were found. At the residence of the assessee himself cash amounting to Rs. 1,10,640, jewellery weighing 59 grams and of course a number of loose sheets comprising of documents relating to liquor business were found. On this basis it was argued as to why not Shri Manohar Singh from whom so much cash was found and why the assessee should be treated to be the owner of liquor business, to which various documents found at the premises of both Shri Manohar Singh and the assessee related. At the first blush this argument may appear to be quite impressive, but the learned AO has supported his finding that the assessee was the owner and Shri Manohar Singh was his cashier with considerable cogent material. As to the state of physical prosperity, the material brought on record by the learned AO depicts the assessee to be a rich and prosperous businessman and not Shri Manohar Singh. The question as to who is the employer and who is the employee, is not a question to be decided merely on the basis of where higher amount of cash was found at the material point of time, more so when one of the two is supposed to be cashier. If other things such as, house where the assessee resided, equipments, gadgets and other things installed, overall standard of living, various investments in immovable and movable properties as brought out in the impugned order are taken into account, then the disparity in the amount of cash found at the residences of Shri Manohar Singh and the assessee gets reduced to insignificance. As to the documents found at the premises of Shri Manohar Singh, the learned AO found that the summary sheets written on daily basis were equivalent to loose pages of the cash book of the business. These summary sheets were prepared by Shri Manohar Singh on the basis of various loose papers handed over to him on daily basis by salesmen of various liquor vends. On the left hand side column of each summary sheet, first entry is opening cash balance followed by all cash receipts on account of sales of the day, etc. On the right hand side outgoings purchases/expenses, loans given, etc. are written. Significantly the household expenses of the assessee also find mention as outgoing on the right hand side of these summary sheets.

Thereafter the amount of closing balances is arrived at and carried forward as the opening balance in the summary sheets of the next day.

In the impugned order the learned AO has discussed this aspect at length and given illustration. From the residence of Shri Manohar Singh summary sheets for the period from 11th June, 1996 to 19th June, 1996 were found. These summary sheets were accompanied by daily sale reports written by salesmen of different vends. The statements of those salesmen were recorded on oath and they confirmed the explanations given by Shri Manohar Singh. The learned AO found that some of those salesmen who had written daily sale reports in their capacity as salesmen at the liquor vends had been shown partners of the liquor firms at Hansi, Tosham, Narnaund, Bhawani Khera. All these summary sheets were duly verified and the noting "Check kiya gaya" was written at the bottom of each summary sheet in the handwriting of the assessee himself. In other words, while Shri Manohar Singh was writing the summary sheets, the assessee was examining and certifying the correctness thereof. These summary sheets apart the learned AO found that all the expenditure bills relating to the liquor business were passed and counter-signed by the assessee. According to the learned AO every single bill relating to the business bore the signature of the assessee. When the assessee was confronted with these facts, he stated that he had countersigned the papers at the instance of Shri Sat Pal, partner. However, the assessee did not raise these issues while cross-examining Shri Manohar Singh. Shri Sat Pal in his deposition claimed that the assessee was the owner of the business and he was only an employee. The only documents where Shri Sat Pal was found having signed were the daily sales reports being signed by salesmen at liquor vends. The learned AO has also mentioned the state in which cash of Rs. 8,57,490 was found from the residence of Shri Manohar Singh. "Out of this cash only of Rs. 22,000 was found from the children's bed room in the purse of Shri Manohar Singh's wife. The remaining cash of Rs. 8,35,490 was found in 10-15 bundles tied in small slips. The slips bore the name of the liquor vends, date and details of currency notes and total signifying that those bundles were cash collected against sale of liquor at various vends on day-to-day basis. For example, the cash of Rs. 75,000 in the slip dt. 26th June, 1996 consisted of cash of Barsi Gate vend as was clear from the narration "English Wine". The learned AO has discussed in the impugned order elaborately the entire modus operandi as regards purchase of liquor, sale of liquor at various vends, cash collection of the vends and the accounting done in respect of those transactions. The assessee's hand on summary sheets shows that the assessee was exercising control over daily business transactions through these summary sheets. Some of these summary sheets bore the name of the assessee against cash handed over to him. Shri Manohar Singh explained that after 10-15 days the documents were being handed over to the assessee and that was the reason that daily sale reports and summary sheets of 10-15 days immediately preceding the date of search only were found from the residence of Shri Manohar Singh. It was stated that the assessee in turn passed on the papers to his Munim.

From the documents seized at the residence of the assessee the learned AO further found that the assessee was keeping himself abreast of daily stock position of various liquor vends in making his calculation regarding the stock required to be purchased and the stock which necessarily must be sold before the expiry of the licence. The statements of shop owners where the liquor vends were situated were also recorded. Those shop owners stated that they had let out their shops to the assessee who was the owner of the business carried on there. The owner of the shop at Barsi Gate was Smt. Budhwanti, wife of Shri Dalip Singh with whom the assessee had serious quarrel. However, there is so much circumstantial evidence brought on record in the marathon order made by the AO as far as Barsi Gate vend is concerned that the statement of Smt. Budhwanti that the shop belonged to her and was taken over by the assessee for liquor business under some disputed claims of Smt. Budhwanti cannot be regarded as a material supporting the assessee. The owner of the premises of M/s Gupta Wine Palace, of two shops at Gosai Gate also confirmed that it was the assessee to whom the same were'let out and who was carrying on liquor business there.

All pointed to the assessee as having taken over the premises for running his liquor vends at those premises. Moreover, a rent receipt issued by Shri Nihar Singh was found to be in the handwriting of the assessee himself. There was also a document being rent agreement for certain premises taken on rent in the name of M/s Chander Bhan Om Prakash & Co. that was signed by the assessee as contractor.

106. During the course of search proceedings, a large number of statements were recorded of the salesmen found working at various liquor vends. Some of the salesmen were examined later on also. Those persons stated that they had been employed by the assessee. Once a person was employed he was given a diary under the signatures of the assessee fixing his monthly wages. Thereafter the salesman would get his wages from Barsi Gate vend after showing the diary to Shri Manohar Singh, cashier. These facts were stated by various salesmen in their statements on oath. Some of them even produced diaries duly initialled by the assessee fixing their wages. We may point out here that in the impugned order the learned AO has time and again made a statement that the cross-examination of almost all persons, whose statements were being relied upon in the impugned order in any context, was afforded to the assessee and thereafter either nothing contrary to the earlier statements emerged from the cross-examination by the assessee or in most cases the assessee did not even come forward to cross-examine the concerned persons. According to the learned AO, even the lengthy cross-examination of Shri Manohar Singh, who gave graphic account of the assessee's business modus operandi with reference to cash and documents found at his residence, the cross-examination taken by the assessee which lasted two days, did not result into any material so as to dilute the impact of the statement of Shri Manohar Singh as originally recorded. Similarly, the learned AO confronted the assessee with various seized documents. The assessee did not reply to many of the significant aspects of the seized documents or he gave evasive reply and kept on changing his stand in regard thereto from time to time.

107. The learned AO has placed reliance on a police FIR lodged by the assessee himself on 15th April, 1996. In the FIR the assessee stated that he had taken vends at Hansi for the financial year 1996-97 in the benami name of M/s Mittal & Co. and that he had taken on rent the liquor vend at Old Bus Stand, Hansi which was in the name of Smt.

Budhwanti, w/o Shri Dalip Singh since 1988-89. Around 6.30 p.m. on 15th April, 1996 Sardar Dalip Singh came in white Gypsy with three friends followed by one white Maruti car, one blue Maruti car and two-three scooters. Thus, 12-13 persons including sons of Sardar Dalip Singh came and surrounded the assessee and put a revolver on his chest. As Sardar Dalip Singh cut assessee's forehead with his kirpan, his friends went inside the vend and beat up Shri Manohar Singh and took away the cash and also snatched gold chain from the neck of the assessee. This FIR was lodged by the assessee from Government hospital where he was admitted. Thus, the assessee himself made a statement that he was the owner of the liquor business being carried on in the name of M/s Mittal & Co. and that he was carrying on the business of liquor at liquor vend at Old Bus Stand, Hansi which was in the name of Smt. Budhwanti since 1988-89. Furthermore, on 19th July, 1996 the assessee appeared before ADI, Hissar. On that occasion the ADI tape-recorded the conversation of the assessee without the knowledge of the assessee. The learned AO has attached verbatim transcript of that tape-recorded conversation as Annex. 2 to the impugned order. In that conversation the assessee admitted 'off record' that he was 40 per cent shareholder in M/s Gupta Wine Palace and 50 per cent shareholder in Bhawani Khera. He also admitted having 45 per cent share in L-2 and L-14A vends in Hansi. The assessee was asked if he had 45 per cent share, then who were the other partners but he could not tell their names even in that 'off record' conversation. A copy of the cassette of recorded conversation was given to the assessee but he made no reply.

108. The learned AO has recorded that during the course of proceedings under Section 158BC, the assessee could not come forward with credible explanation and material when confronted with the statements of various persons and evidence/material found as a result of search or gathered thereafter. In relation to police FIR, the assessee stated that he was mentally disturbed. The learned AO found that in the FIR the assessee had given minute details of the incident, amount of cash stolen, registration number of Maruti Gypsy, the colour of other cars and names of several persons who came along with Sardar Dalip Singh and, therefore, how could the assessee commit any error so as to call himself the owner of business in the name of M/s Mittal & Co. As to the notings made by him on the documents found from the residence of Shri Manohar Singh, the assessee stated that he was doing so at the behest of Shri Sat Pal, partner. Shri Sat Pal in turn claimed to be an employee of the assessee and even a daily sales report bearing signature of Shri Sat Pal was found amongst the seized documents. The assessee could not even explain as to how the household expenses of the assessee found place in the summary sheets found at the residence of the assessee. Even salary of the driver of a car bearing No. HR-9B-0004 was found debited in summary sheets. The driver in his statement specifically stated that he was employed by the assessee to drive the assessee's car and sometimes the assessee's jeep. At the same time the name of the driver Shanker was found as a partner in liquor firms of L-2 and L-14A vends in Bhawani Khera/Tosham for 1996-97. Expenditure on Sunder Hotel being constructed in the name of his wife was also found to have been debited in the summary sheets. When confronted the assessee stated that he was merely an employee and the expenditure with respect to Sunder Hotel had been amounts taken by him by way of loan.

As to the diaries issued by him fixing the wages of various salesmen at various liquor vends, the assessee stated that he had done so at the instance of respective owners of liquor vends. However, that explanation was never corroborated with any other evidence/material.

According to the learned AO, the assessee was in the habit of changing his statements. At the time of search at his residence, in the preliminary statement the assessee described himself as petty employee of M/s Mittal & Co. whose main duty was to bring liquor from distillery for which he was paid a monthly salary of Rs. 2,500. Besides, the assessee claimed that he had a monthly income of Rs. 400 from a petty grocery shop at his ancestral village Dhanauri. However, major documents related to business, such as partnership deeds, receipts of payment of licence fee, copies of returns, correspondence with Excise Department, police Department, Court papers were found from the residence. Many documents pertaining to conduct of the business in assessee's own handwriting were found. The assessee stated that all that working was done at the behest of Shri Sat Pal. Shri Sat Pal on the other hand denied having any knowledge of those papers. In the initial statement Shri Sat Pal claimed that he was a partner in the business at Hansi and in the - same breath he stated that he was an employee on a salary of Rs. 1,500 per month. On the date of search he was found working at liquor vend at G.T. Road, Hansi and in the statement recorded there he merely stated that he was an employee. In reply to a specific question, he had denied any share in the liquor vend. Subsequently Shri Sat Pal denied having any partnership interest in the liquor business. At the time of search the assessee stated to have a petty grocery shop at Village Dhanauri but enquiries revealed that the assessee was not running any shop at Village Dhanauri. As to the House No. 835/14, Yeti Nagar, where the assessee was found to be residing in luxury, he stated that he was merely a tenant of the landlord Shri Baldev Singh and six air-conditioners, colour TV had been provided to him along with house at a monthly rent of Rs. 400. When Shri Baldev Singh was contacted he denied ownership of the property as well as the air-conditioners. When assessee was confronted with the statement of Shri Baldev Singh, he shifted his stand and stated that the air-conditioners were provided by Shri Sat Pal. In his statement Shri Sat Pal deposed that he had no car, no house nor any agricultural income and he was staying in night at liquor vend because he had no residential house to stay. In the preliminary statement the assessee stated that none of his family members had gone on foreign tour. Later on, he admitted that his daughter had visited Singapore and Malaysia on her educational tour. Regarding source of educational tour the assessee stated that he had been given a reward of Rs. one lakh by Shri Sat Pal.

In his statement recorded on 30th July, 1996 Shri Sat Pal stated that he was only an employee and denied having given any salary/reward or award to the assessee. On denial by Shri Sat Pal the assessee changed his statement on 10th June, 1997 and stated that the amount was given to him by Shri Chander Bhan. As to the partnership deeds found at his residence the assessee had in his preliminary statement stated that the same had been left by Shri Ashok Kumar, Chander Bhan and Shri Gupta, whose full names and addresses were not known to him. But in his subsequent statement the assessee changed his earlier version and stated that those documents had been left behind at his residence by Shri Sat Pal. All the other witnesses examined during assessment proceedings confirmed that Shri Sat Pal was only an employee as a salesman at L-2 vend at G.T. Road, Hansi.

109. As mentioned at the time of the search the assessee was staying at house No. 835/14, Yeti Nagar. The house was furnished with six air-conditioners, colour TV, VCR, table tennis table, fridge, sofas, telephones, etc. Stone fixed in front of the house bore description "Mange Ram, 835/14, Yeti Nagar". It was not a simple name plate but a permanent stone embedded in the property at the time of construction.

In his statement the assessee merely stated that the house belonged to Shri Baldev Singh, but he never furnished any documentary evidence to support that claim. Neither any purchase deed, nor any rent agreement or rent receipt was produced by the assessee. According to the assessee he was paying a rent of Rs. 400 per month. The house was double storeyed with covered area of 342 sq. mts. located in posh area and involved investment of Rs. 16 lakhs. The house was fitted with six air-conditioners that according to the assessee were covered by the rent of Rs. 400 per month. Obviously the assessee was making an altogether improbable story. The assessee's children were found to be studying at expensive schools and it was found that educational expenses of Mr. Rajiv Mittal, son of the assessee at Chaman Vatika, Ambala amounted to Rs. 60,000 per annum. The educational. expenses of the daughter at Vidya Devi Jindal School, Hissar amounted to Rs. 15,000 per annum. All these aspects showed that the assessee must have been in some prosperous business and he could not be a petty employee at a salary of Rs. 2,500 per month. During the course of search a visiting card of the assessee was found in which he described himself as liquor contractor. The L-13, L-14A, L-2 liquor business at Hansi was carried on in the name and style of M/s Mittal & Co. for financial years 1994-95 and 1996-97. Mittal is surname of the assessee and not of Sardar Dalip Singh, Shri Manohar Singh or Shri Sat Pal. For financial year 1992-93 L-13/L-14-A licences for Hansi were taken in the name of the firm. M/s Mange Ram & Co. All these circumstances are suggestive of the assessee's involvement in liquor trade as a big time operator.

110. During the course of hearing before us, the learned Counsel for the assessee vehemently argued that no attempt whatsoever was made by the AO to enquire into the various partnership firms and the books of account of those partnership firms. The AO should have based his assessment on the basis of. books of account and other records of various firms rather than proceeding to estimate business income on the basis of formulas devised by him for that purpose. On consideration of the matter we see no merit in these contentions. During the course of search as well as during the course of enquiry thereafter, the learned AO has made time-consuming efforts to track the partners as mentioned in the excise records for various liquor licences. With considerable efforts, the learned AO could record the statements on oath/solemn affirmation of a large number of such partners and also afforded the assessee an opportunity to cross-examine them. A large number of those partners were found working as salesmen and in other capacities as assessee's employees at various liquor vends. Some of them produced the proof of being the assessee's employee by way of signed diaries given to them by the assessee himself mentioning the salary to be paid to them. Other persons also denied having interest in any of the liquor firms and pointed out that they were persuaded to sign excise records and to allow their photographs to be taken at the instance of the assessee. When the partnerships themselves were found to be having no existence at all, no body came forward as having partnership interest therein, there was no question at all of any further attempt to trace out the books of account and base computation of business income on the basis thereof. At no stage the assessee has produced any such material.

Even though an argument in relation to books of account of various firms has been taken before us in the course of lengthy arguments of the parties, no indication has been made even during the course of hearing before us as to whether and where such books of account were and are lying. We, therefore, reject various contentions of the assessee in this behalf.

111. After taking into consideration the marathon order, numerous facts, circumstances, statements and other materials including a number of documents in the assessee's own handwriting relied upon and analysed by the learned AO in the impugned order and after hearing the submissions of the assessee thereon, we are of the considered opinion that for the purpose of the impugned order under Section 158C the explanation of the assessee that he was a petty employee has to be rejected and by and large it should be accepted that the assessee was carrying on liquor business in his own right at a fairly large scale in benami names.

112. In view of the discussion in the foregoing paras we accept, in principle, that the AO has rightly held that the assessee was engaged during the block period 1'n the liquor business. In view of the considerable material amassed by the learned AO, we are satisfied that the AO is justified in his conclusion that the assessee carried out business of purchase and sale of country liquor as well as IMFL in Hansi circle in the names of various benami firms, viz., M/s Mange Ram & Co., M/s Mittal & Co., M/s Gupta & Co., Gupta Wine Place, M/s Chander Bhan Om Prakash & Co. etc. We find that the AO has brought on record considerable material to support his conclusion that the assessee was carrying out similar business during the period relevant to asst. yr.

1997-98 at Bhawani Khera/Tosham in the name of the concern M/s Shanker Lal & Co. At the same time we are of the view that the finding of the learned AO that assessee carried on the business during the previous year relevant to asst. yr. 1996-97 in the name of a concern M/s Ashok Kumar & Co., Sirsa and during the previous year relevant to asst. yr.

1997-98 in the name of M/s Ved Prakash Darshan Singh & Co., Jind is based on relatively thin material. In respect of M/s Ved Prakash Darshan Singh & Co., Jind the IT authorities did not even find, unlike other concerns, copy of partnership deed during the course of the search at the residential premises of the assessee. As respects Ashok Kumar & Co., Sirsa, copy of partnership deed was found during the course of the search at the residential premises of the assessee.

However, in both the cases of Ashok Kumar & Co. and M/s Ved Prakash Darshan Singh, Jind not much documentary evidence/material has been depicted in the impugned order. The case of the AO is mainly based on the statement of the persons allegedly named as partners in those two concerns at the material point of time. Unlike Hansi/Bhawani Khera business, these partners have not been shown working as employees at any liquor vends or sales outlets. We are of the view that the issue relating to the assessee's undisclosed income for asst. yr. 1996-97 from the concern M/s Ashok Kumar & Co., Sirsa and for asst. yr. 1997-98 from the concern M/s Ved Prakash Darshan Singh is required to be examined further by the AO and for that purpose we restore the question of assessee's undisclosed income, if any, from these two concerns to the file of the learned AO for decision afresh after allowing the assessee further opportunity of being heard in the matter. The AO shall cull out from the massive evidence/material found as a result of the search or gathered by the AO during the course of proceedings under Section 158BG that may have bearing on the question of the assessee's interest in the two concerns abovenamed and weigh the same in the light of explanations and contentions of the assessee. Thereafter the learned AO shall decide the issue afresh in accordance with law and make a detailed speaking order.

113. While we accept the finding of the learned AO that the assessee has carried out liquor business in the names of various concerns during the block period, we find that computation of undisclosed income of the assessee as made by the learned AO requires certain modifications. We appreciate that in the instant case the learned AO had a problem, inasmuch as the assessee had never filed any returns of income in the past and there are no books of account either. The sales at various liquor vends and outlets has been entirely in cash and there is no information of any credit sales, even if there were any. In such a scenario the AO was required to gather considerable material by way of post search enquiry which he did. In view of the very detailed discussion on various aspects of the provisions of Section 158BB(1) we have no difficulty in holding that almost the entire material or information gathered by the AO by way of post search enquiry constitutes materials or information relatable to evidence found as a result of search to the effect that the assessee was carrying out an entirely undisclosed liquor business in the names of various concerns during the block period. The material or information gathered by the learned AO on such aspects, as purchases of desi liquor and IMFL, security deposits and licence fee paid for various authorizations from Excise Department, assessee's investments in immovable properties, acquisition of movable assets, household expenses, etc. are all material or information that were essential for the AO to compute the assessee's undisclosed income from his undisclosed liquor business in the names of various concerns during the block period. We also accept that in spite of so much of material and information having been gathered by the learned AO, the AO found himself obliged to resort to certain estimate and guess work in the absence of books of account or accounts kept in any other manner or any other relevant evidence, material or information forthcoming from the assessee. The assessee on his part has till the end done nothing better than maintaining that he was merely a petty employee of some employer in liquor business. We have referred to various Court pronouncements in paras 80 to 88 of this order where having regard to the fact that in a block assessment under Section 158BC, the AO has before him the task of quantifying what is not disclosed, the Courts have held that the AO would be entitled to resort to the required degree of estimation and guess work. We have also noted that the language of the provisions of Section 158BB(1) is virtually the same as the language of Section 143(3). Even otherwise provisions of Section 158BC(b) expressly incorporate the provisions of Sections 142, 143(2), 143(3), 144 and 145 in relation to a block assessment order under Section 158BC. It, therefore, follows that the same standards as in relation to an order under Section 143(3) do apply to an order under Section 158BC as well. At the same time on a careful appraisal of the computation of undisclosed income as made by the learned AO in the impugned order, we are of the view that the same calls for certain modifications for the following reasons: (i) The learned AO has on the one hand assessed undisclosed profits of the assessee from the liquor business in various assessment years comprised in the block period. He has, at the same time, made assessment of assessee's undisclosed investments in security deposits, licence fee, initial investments for trading stock at various liquor vends, investments in immovable properties, movable assets and household expenses etc. The provisions of Sections 69, 69A to 69D legally empower the AO to assess such investments and expenditure in the absence of satisfactory explanation from the assessee. The provisions of Sections 69, 69A to 69D have been consciously incorporated in Section 158BB(1) by way of substitution made by the Finance Act, 2002 with retrospective effect from 1st July, 1995 whereby the words "provisions of Chapter IV" have been substituted by the words "provisions of this Act". Still, all said and done, one cannot lose sight of the fact that it amounts to assessment of incomings as well as outgoings. Logically, in the absence of requisite material and information, for the purposes of estimation of income, either incomings should be added up and treated as the source whence outgoings were made or the outgoings in aggregate should be treated as the indication of income. The assessment of both, even though legally permissible is, therefore, often required to be avoided so as to arrive at a just and fair assessment. Conscious of this basic aspect the learned AO has himself allowed the assessee credit of the assessee's security deposits in an earlier year and assessed in the subsequent year only incremental accretion in the security deposits made in the names of various concerns. However, he has not followed the same approach in respect of other items of investments and expenditure. In our opinion, for the purpose of a just and fair assessment of the assessee's undisclosed income, only the incremental accretion in the assessee's investments/assets/expenditure should be assessed in a subsequent year with the rider that the funds wasted in household expenses or blocked in immovable and movable assets would obviously be not available for fresh investments or expenditure in the subsequent years.

(ii) The learned AO has assessed the profit on the value of total purchases based on actual quota lifted by the assessee as per excise records, as increased by other expenses estimated at the rate of 2 per cent, excise duty and total licence fee paid by the assessee during the year. The learned AO has estimated net profit at the rate of 5 per cent of the sum total thus arrived at. The only basis given by the learned AO for application of net profit rate of 5 per cent is that in the case of an assessee M/s Arjun Dass Surender Singh & Co., Hansi for asst. yr. 1985-86 that assessee had declared total sales at Rs. 1,20,32,000 and net profit at Rs. 2,17,840. However, the net profit in that case was assessed at Rs. 8,28,460 after giving effect to the order of Tribunal. After excluding additions on account of unexplained investment, disallowances under Section 40A(3) the trading profit worked out to Rs. 5,30,000 giving a net profit rate of 4.5 per cent. Taking a cue from that assessment, the learned AO has thought it fit to apply uniform net profit rate of 5 per cent in the case of the assessee in respect of all the concerns for the block period asst. yrs. 1991-92 to 1997-98. In our view the basis adopted by the learned AO is not satisfactory. What has been held for assessment year 1985-86 may not hold good for asst. yrs.

1991-92 to 1997-98. Secondly, that was the case of much smaller turnover. Thirdly, the approach of the learned AO suggests that there has to be profit at uniform rate at all the concerns for all the years. In the liquor business the public auction is made and the contract is given to the highest bidder. In order to be successful, bidders have to come out with the maximum possible amount that puts considerable pressure on their margin of profit. Fourthly, the learned AO has applied the same rate on IMFL as in respect of country liquor, that is unrealistic. We hastened to add here that in view of the approach we have endorsed in (i) above, this aspect loses significance because as we would shortly see, the incremental accretion in the assessee's investments and expenditure is sufficient to arrive at a fair assessment of the assessee's undisclosed income for many assessment years.

(iii) For asst. yrs. 1996-97 and 1997-98 the learned AO has made certain additions on account of seized documents. The same have been discussed by the learned AO in para 81 of the impugned order. We find that the additions made by the learned AO are based entirely upon his interpretation of entries made in the seized documents.

Based on the document A-4, pp. 4 and 6, seized from the pocket of the assessee himself during the course of the search, the learned AO has worked out an addition of Rs. 55,91,122 for asst. yr. 1996-97 and Rs. 41,38,260 for asst. yr. 1997-98. In addition, the learned AO has made an addition of Rs. 1,67,60,000 as the assessee's income from undisclosed sources for asst. yr. 1996-97. Similarly, based on document A-5, p. 7, the learned AO has made an addition of Rs. 2,55,00,000 for asst. yr. 1997-98. Thus, huge additions have been made by the learned AO on the basis of the seized documents. He has, however, not been able to corroborate his interpretation of these seized documents by any material or information gathered by him during post search "enquiry. There is apparent flaw in the approach of the AO, inasmuch as in relation to document A-4, p. 6, the learned AO has ignored the loss figure of Rs. 99,09,555, whereas he has treated all other entries as representing transactions that have actually taken place. Moreover, the learned AO has not restricted the assessment of assessee's undisclosed income to the seized documents that purport to be a sort of income and expenditure account for the financial years 1995-96 and 1996-97. As to the document A-5, p. 7, the learned AO reads the figure 2.55 to mean Rs. 2.55 crores and the figure 70 to mean Rs. 70 lakhs entirely on his own. After a careful consideration, we are of the view that additions of undisclosed income made by the learned AO in respect of these seized documents are required to be deleted for a variety of reasons. First, insofar as the document A4 and 6 are concerned, the learned AO has not fully acted upon the seized document. It is not open to the AO to selectively assess the transaction recorded on a seized document. The same should either be wholly acceptable to the AO or wholly not acceptable. It is not open to the AO to make assessment of income figures and at the same time ignore the loss figures on one and the same seized document. Moreover the learned AO has himself not taken the seized document as a complete account of assessee's income and expenditure of the two financial years. As to the document A-5, p. 7 the figures have been read by the AO in an arbitrary manner. He interprets the figure 70 to represent 70 lakhs and HT, Hansai to read Haryana Tube, Hansi without any further enquiry and co-relation with the alleged Haryana Tube, Hansi. We are, therefore, of the view that the learned AO has not been able to support the additions made by him on the basis of the seized documents with any evidence, material or information that may carry some conviction. Furthermore, as he has separately assessed the investments and expenditure of the assessee, to that extent these additions, if at all, are in the nature of double assessment. For all these reasons we delete the additions made by the learned AO based on such documents.

(iv) The learned AO has assessed undisclosed income from asst. yr.

1987-88. He does not have any evidence found as a result of search or any material or information relatable to such evidence gathered subsequently as respects the assessee's liquor business prior to asst. yr. 1991-92. We are, therefore, of the view that assessment of undisclosed income over and above undisclosed income as per return under Section 158BC filed by the assessee himself for asst. yrs.

1987-88, 1988-89, 1989-90 and 1990-91 is not called for. The additions made by the learned AO in relation to those assessment years are, therefore, deleted.

(v) On the basis of considerable material brought on record by the learned AO in relation to residential house No. 835/14, Yeti Nagar, Hansi and after having heard at length the arguments of the parties in relation thereto, as elaborately discussed by us in the earlier part of this order, we uphold the assessment of undisclosed investment in that house property as a component of assessee's undisclosed business income for asst. yrs. 1994-95, 1995-96 and 1996-97. We also uphold the findings of the learned AO in relation to plot No. 1490, Sector 46, Gurgaon. House No. 1637-UE, Hissar; plot No. 110/18, Near Sunder Hotel,. Old Bus Stand, Hansi and House No. 623, Ward No. 4, Rania, these three properties were found to be in the name of the assessee's wife Smt. Prem Lata. During the course of hearing before us the learned Counsel for the assessee argued that the AO was not entitled to take into consideration immovable properties that did not stand in the name of the assessee, but in the name of the assessee's wife. It was argued that the assessee's wife had her own sources of income and financial status but no concrete details in relation thereto have been relied upon by the assessee. During the course of search the assessee's wife was found to be entirely dependent upon the assessee and having no known source of income of her own. In her statement recorded during the course of search, she herself stated so. We, therefore, uphold the additions made by the learned AO in regard thereto, after reducing the same by a sum of Rs. 5 lakhs on estimate on account of considerable difference between the value as admitted by the assessee and the value as estimated by the Department valuation cell.

(vi) As to the estimate of household expenses made by the learned AO, the same is based on what was seen first hand on the date of search and other evidence/material found as a result of search. We uphold inclusion of the same for the purpose of arriving at a fair estimate of assessee's undisclosed income of the block period from the liquor business. Here we find that the estimate of household expenses of the assessee as made by the learned AO for various assessment years are fair and reasonable. They are mainly based on concrete material, such as educational expenses of the assessee's children, electricity and telephone bills, etc. For the same reason we also uphold the learned AO's computation of undisclosed income on account of assessee's investment in movable assets, as enumerated in para 32 of this order.

(vii) We are clearly of the view that huge income from business as computed above sufficiently covers and, therefore, no separate addition on account of cash credits, gifts and seized documents is called for. We direct accordingly. As to the amount of cash seized, the same has of course to be included while working out the assessee's business income based on investments, acquisitions and expenditure.

114. We now proceed to determine the assessee's undisclosed income of the block period keeping in view the various observations made by us and modifications noted by us in para 113 above. Here we repeat that we have already restored the question of the assessee's undisclosed income, if any, in respect of liquor business named and styled as M/s Ashok Kumar & Co., Sirsa for asst. yrs. 1995-96 and 1996-97 and in the name of M/s Ved Parkash Darshan Singh & Co., Jind for asst. yrs.

1996-97 and 1997-98, to the file of the learned AO for decision afresh.

Subject to such further income, if any, as the AO may henceforth determine in this behalf, the assessee's undisclosed income for block period is computed as under:Assessment year 1987-88 (Rs.)Undisclosed income as per return filed under Section 158BC 16,800Assessment year 1988-89Undisclosed income as per return filed under Section 158BC 16,929Assessment year 1989-90Undisclosed income as per return filed under Section 158BC 17,500Assessment year 1990-91Undisclosed income as per return filed under Section 158BC 17,800Assessment yeai 1991-92Undisclosed income in security deposit of M/s Gupta & Co.,L-14, Hansi 80,00,000Undisclosed investment in Licence Fee of L-13 of M/s Gupta &Co., Hansi 75,000 ______________Initial investment in purchase of liquor for M/s Gupta & Co.L-14, Hansi as per para 65 of the impugned order 2,66,250Net profit of M/s Gupta & Co. as per para 65 of the impugnedOrder 18,84,250Household expenses as per para 74 of the impugned order 1,55,000Investment in construction of house at Rania as per page 70 ofthe impugned order.

1,08,996 ________________ Note : No separate addition is made for security deposit and license fee amounting to Rs. 26,59,600 as the same are treated to be covered by the refund of security deposit made in the earlier assessment year in relation to M/s Gupta & Co.Household expenses as per para 74 of impugned order 1,90,000Investment in construction of house at Rania as per para 70.

1,08,996Profit of M/s Mange Ram & Co. as per para 64 of theimpugned order.

11,93,010 _________________ Note : No separate addition on account of security deposit and licence fee of Rs. 72.08 lakhs of M/s Gupta & Co. L-2, L-13 & L-14, Hansi and initial investment in purchase of liquor by M/s Mange Ram & Co., as the same are treated to be covered by the income assessed for asst. yrs.

1991-92 and 1992-93.Security deposit during the year of M/s Mittal & Co. L-14,Hansi.

66,34,000Security deposit of M/s Mittal & Co. L-2, Hansi.

17,80,000License fee of M/s Mittal & Co. L-13, Hansi.

1,25,000License fee of M/s Gupta Wine Palace, L-l, Hansi.

5,00,000Household expenses as per para 74 of the impugned order.

2,13,000Investment in construction of house at Yeti Nagar, Hansi, asper para 66.3 of the impugned order 4,78,608Investment in house at 1637,UE-2, Hissar, after reducing Rs. 3lakh on account of difference in valuation from estimate inpara 67 of the impugned order.

9,30,125Investment in initial purchase of liquor by M/s Gupta & Co.,L-14, Hansi.

4,60,530Investment in initial purchase of liquor by M/s Gupta & Go.L-2, Hansi.

2,41,070 __________________Total: 1,13,62,333Less : Security deposit assessed for asst. yr.1991-92 80,75,000Less : Assessed income of asst. yr. 1993-94& Investment in house at Rania.

11,93,010 ________________ Note : No separate profit from M/s Gupta & Co. L-2, L-13 and L-14, Hansi is assessed as the same is treated to have been included in various investments and expenditure during the year.Assessment year 1995-96Security deposit for M/s Chander Bhan Om Parkash & Co.L-14, Hansi.

1,10,71,700Security deposit of M/s Chander Bhan Om Parkash & Co.L-2, Hansi.

20,57,900License fee of M/s Chander Bhan Om Parkash & Co.L-13, Hansi.

1,50,000Investment in License fee of M/s Gupta Wine Palace,L-l, Hansi.

5,00,000Household expenses as per para 74 of impugned order.

2,41,000Investment in construction of house at Yeti Nagar, Hansi, asper para 66.3 of the impugned order.

7,95,816Investment in initial purchase of liquor at M/s Mittal & Co.L-14, Hansi, as per para 60 of the impugned order.

6,07,145Investment in initial purchase of liquor at M/s Mittal & Co.,L-2, Hansi as per para 61 of the impugned order.

31,26,530Investment in initial purchase of liquor at Gupta Wine Palace,L-1, Hansi, as per para 59 of the impugned order.

1,20,44,056 ________________1991-92 80,75,000Undisclosed income for asst. yr. 1992-93Rania.

21,50,500Undisclosed income for asst. yr. 1993-94at Rania.

11,93,010Undisclosed income for asst. yr. 1994-95investment in immovable property.

4,72,590 (-) 1,18,91,10 Note : No separate business profit from business at Gupta Wine Palace, L-l, Hansi; M/s Mittal & Co. L-2 and L-13, Hansi is assessed as the same is treated to have been included in various investments and expenditure during the year.Security deposit of M/s Mittal & Co., Hansi 1,38,34,000License fee of M/s Mital & Co. L-13, Hansi.

1,50,000Security deposit at M/s Shanker Lal & Co., Bhawani Khera.

66,83,000License fee of M/s Shanker Lal & Co. Bhawani Khera, L-13.

1,50,000License fee of M/s Gupta Wine Palace, L-l, Hansi.

5,00,000Undisclosed household expenses as per Para 74 of theimpugned order.

4,01,000Investment in construction of house at Yeti Nagar, Hansi, asper para 66.3 of the impugned order 3,97,908Investment in vehicles as per para 75 of the impugned order.

8,50,000Initial investment in purchase of liquor at M/s Chander BhanOm Parkash & Co. L-14, Hansi, as per para 57 of theimpugned order.

7,04,640Initial investment in purchase of liquor at M/s Chander BhanOm Parkash & Co. L-2, Hansi.

28,18,200Initial investment in purchase of liquor at M/s Gupta WinePalace, L-l, Hansi.

1,39,63,614 ________________1991-92 80,75,000Undisclosed income for asst. yr. 1992-93at Rania.

21,50,500Undisclosed income for asst. yr. 1993-94at Rania.

11,93,010Undisclosed income for asst. yr. 1994-95investment in immovable property.

4,72,590Undisclosed income for asst. yr. 1995-96investment in immovable properties.

1,76,66,231 __________________ Note : No separate business profit from businesss at Gupta Wine Palace, L-l, Hansi; M/s Mittal & Co. L-2 and L-13, Hansi is assessed as the same is treated to have been included in various investments and expenditure during the year.Assessment year 1997-98 (Upto 28th June, 1996 only)Undisclosed household expenses as per para 74 of theimpugned order.

1,54,000Cash found at the residence.

1,10,640Cash found at the residence of Shri Manohar Singh 8,35,490investment in household gadgets found at the time of search,as per para 75 of the impugned order.

1,50,000Investment in plot No. 1490/46, Gurgaon.

1,78,920Initial investment in purchase of liquor at M/s Mittal & Co.L.-14, Hansi.

7,13,250Initial investment in purchase of liquor at M/s Mittal & Co.L-2, Hansi.

11,65,233Initial investment in purchase of liquor at M/s Shanker Lal &Co. L-14, Bhawani Khera.

3,78,536Initial investment in purchase of liquor at M/s Shanker Lal &Co. L-2, Bhawani Khera.

6,21,277Initial investment in purchase of liquor at Gupta Wine Palace,L-1, Hansi.

89,14,956 ________________ It is, thus, seen that the assessee's investments and'expenditure for the broken period of asst. yr. 1997-98 as brought on record by the learned. AO falls short of the undisclosed income already assessed up to asst. yr. 1996-97. It is because the block period for asst. yr.

1997-98 is less than three months. Under these circumstances we are of the view that for asst. yr. 1997-98 the assessee's undisclosed income should be restricted to business profits of the year as computed by the learned AO. We accordingly estimate assessee's undisclosed income for asst. yr. 1997-98 in the following manner:Profit of M/s Mittal & Co. L-2 and L-14, Hansi.

19,02,305Profit of M/s Shanker Lal & Co., Bhawani Khera 12 & 114.

9,59,916Profit of M/s Gupta Wine Palace, L-l, Hansi.

1,34,350 _________________ Thus, subject to any further order that the learned AO may pass in relation to M/s Ashok Kumar & Co., Sirsa and M/s Ved Parkash Darshan Singh & Co., Jind, the assessee's undisclosed income for the block period is assessed as under:Assessment year Undisclosed Assessment year Undisclosed income income1987-88 16,800 1993-94 14,92,0061988-89 16,929 1994-95 20,94,3231989-90 17,500 1995-96 1,87,03,0471990-91 117,800 1996-97 1,08,95,0311991-92 80,75,000 1997-98 29,96,571 __________________ Before parting we wish to emphasise that in this case in the absence of books of account or accounts in any other manner or any information or data supplied by the assessee, the only alternative has been to assess the assessee's undisclosed income to the best of the judgment on the basis of evidence, material and information available on record. We have, however, exercised all possible care to avoid any excessive or unreasonable estimate of the assessee's undisclosed income of the block period. For that reason we have not accepted many of the additions made by the AO and allowed the assessee telescoping to the full extent. We have also sent back the issues relating to the concerns M/s Ashok Kumar & Co., Sirsa and M/s Ved Parkash Darshan Singh & Co., Jind for reappraisal and readjudication by the AO.In view of the above, various grounds taken by the assessee in this appeal are disposed of accordingly.