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TMI Blog1999 (3) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... 16th of July, 1996, Simultaneously, a search was conducted at the premises of Shri C. D. Shah also. In the course of the search, 34 hundies of various dates and amounts were found aggregating to ₹ 1,61,72,000. The details of these hundies such as (a) the party who issued it, (b) the party in favour of whom it is issued, (c) the date of issue, and (d) the amount of the hundi in respect of the 34 hundies in question are given by the Assessing Officer at pages 3 to 5 of his order. While they bear the signature of the party who issued it, some of the hundies are blank either in respect of the party in favour of whom it issued or the date of issue, or both. It may also be clarified that in respect of the said 34 hundies aggregating to ₹ 1,61,72,000, what were located during the search were only photocopies and not originals. 4. The search party also located certain documents during the search and one of the documents included in the Panchnama as Sheet 41 of Annexure A-3 read as follows :- "R.S. J. Chittarajan and Co. Outstandings 0.72 1-1-1992 2.70 1-1-1992 5.00 1-1-1992 4.00 1-1-1992 7.50 1-1-1992 7.50 1-1-1992 4.00 1-1-1992 4.00 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion. As I can recollect that I have lent ₹ 48.75 lakhs around 1985 or 1986 and I am not aware of the subsequent developments. Q. 10 Was there any search action under section 132 of the Income-tax Act prior to this action in your case. If so, when. Ans. Yes, there was a search action under section 132 of the Income-tax Act somewhere in 1989. Q. 11 if I accept your earlier statement noted above as regards the loan of ₹ 48.75 lakhs as given in and around 1985 or 1986, then, whether you had surrendered the above amount during the search action in 1989. Ans. No. Q. 12 In addition to the hundies of 1.3642 crores mentioned earlier (given to J. Chittaranjan and Co.) it is also seen that you have given loan to Meghna enterprise for which the hundies (zerox copies) have been found. The details of which are as under : Sr. No. Pg. No. in Annexure A-3 Amount Date 1 3 4.00 2 4 4.00 3 5 4.00 4 6 4.00 5 7 4.00 1-1-1993 6 16 4.55 Kindly state to whom Meghna Enterprise belong and when the amount was advanced. Ans. Meghna Enterprise might belong to Shri C. D. Shah the amount given in these hundies is included in the 48.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cash Hundi is paid. Therefore cash Hundies for further interest have been issued by me. It is to be stated further that I have already paid back sufficient portion of accounted component of loan and interest thereupon. Q. 16 You say that the Hundi taken in cash was to the extent of ₹ 15,00,000 (Rupees fifteen lakhs) and it was taken in the year 1986-87. The interest accrued have also been converted into Hundies for the entire period from 1986-87 till date. Please state then what is the total amount payable to Mr. A. K. Patel by way of Hundies raised in cash, out of loan and interest therefrom ? Ans. You can very well work out the total amount of Hundies issued by me in cash, on account of the above as given to Mr. A. K. Patel from the above data which I have already stated in answer to your question No. 15. But according to me the total amount in cash should not exceed ₹ 2 crores (Rs. 2,00,00,000). However, this is subject to verification. Q. 17 Please state whether you are keeping any record of Hundies which are unaccounted ? Ans. I state that I Have issued those Hundies. But I have not kept any record of them but original Hundies are with Mr. A. K. Pate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be its nature ? Ans. Hundies raised for interest - quarterly compounded were added to the principal amount and old hundies were destroyed. Q. 29 Whether you feel you have got any unaccounted money either in your name or in your firm's name ? Ans. No please." Shri D. A. Patel, son of the late Shri A. K. Patel, was also questioned on these hundies and the relevant portion of his deposition is given by the Assessing Officer at pages 10 to 13 of his order. He deposed that Sheet No. 40 of Annexure-A-3, reproduced hereinabove, was written by him as per the instructions of his father. He mentioned that his father had told him that he had advanced ₹ 25 lakhs to Shri C. D. Shah in the year 1980-82 and that Shri Shah had not paid any interest thereafter, nor, nor returned the principal. He deposed that the amount of interest and the principal put together amounted to approximately ₹ 2,64,46,000 and he also said that this figure was mentioned on the basis of the figure appearing at Sheet No. 41 of Annexure-A-3. There is an unequivocal admission that the contents of sheet No. 41 and 40 of Annexure-A-3 represented the amounts of the principal and the intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the block period on the ground that it was only a convenient and self-serving back calculation. 6. Before us, the learned counsel for the appellant reiterated the contention that the amount originally advanced was only ₹ 25 lakhs and that it fell beyond the block period and as such it is not taxable. So far as the accumulation of interest on the advance is concerned, it is pleaded that the appellant had not received any interest subsequent to the advance of ₹ 25 lakhs in 1981 and that the relations between the appellant and Shri C. D. Shah were not good and so neither the principal nor the interest could be received till date. It is also pleaded by the learned counsel for the appellant that the concept of real income, though diluted, still rules the roost and it is pleaded that no addition can be made unless income has really accrued. In this context, reliance is placed upon the decision of the Hon'ble Madras High Court in the case of Commissioner of Income-tax vs Motor Credit and Co. (P.) Ltd . ( 1981 ) 127 ITR 572/6 Taxman 63 in which it was held that the method of accounting cannot determine the range of taxable income or the ambit of taxation and no in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocated during the search by way of photocopies of hundies and other papers. It is also mentioned that the late Shri A. K. Patel had given coherent answers on the date of the search to all the questions and his admission that he had advanced monies to Shri C. D. Shah cannot be ignored. It is also pleaded that while the late Shri A. K. Patel had mentioned that his son knew the details of the transactions in question and also the location of the original hundies, his son gave only evasive replies when confronted with the seized papers. It is mentioned that both son and father had washed their hands off the transactions, each throwing the responsibility on the other. It is also pleaded that Shri C. D. Shah had clearly acknowledged his debt and he had also mentioned that he had given fresh hundies in lieu of payment of interest and as such there was a constructive receipt of interest. He had also relied upon the decision of the jurisdictional High Court in the case of Bhojraj Kishanchand vs Commissioner of Income-tax ( 1994 ) 209 ITR 500/73 Taxman 602 ( Bom ) and contended that where the explanation given by the assessee contained missing links and was not supported by relevant document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the Assessing Officer was justified in coming to the conclusion that the above tally in the outstandings and the interest calculations between the photocopies of the hundies seized and interest calculated on Sheet No. 41 can by no means be called coincidental. It clearly shows that the appellant had advanced hundi loans aggregating to ₹ 1,36,42,000 and he had also received fresh hundies in lieu of interest aggregating to ₹ 24,55,000. So we are of the view that the Assessing Officer was justified in bringing these two amounts to tax. 8(a). Of course, Sheet No. 41 shows interest of ₹ 28,97,000 for the period 1-1-1993 to 31-12-1993, ₹ 34,18,000 for the period 1-1-1994 to 31-12-1994 and ₹ 40,34,000 for the period 1-1-1995 to 31-12-1995. However, no hundies were found in support of the receipt of these interest amounts and so it cannot be said that these amounts were actually received. Thus, entries on Sheet No. 41, to this extent, are not corroborated by the physical presence or seizure of hundies. In the circumstances, we hold that the Assessing Officer was justified in making addition only to the extent of ₹ 1,60,97,000 (1,36,42,000 + 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar of assessment relevant for the year of seizure. It may be clarified that the seized hundies aggregating to ₹ 1,60,97,000 were outside the books of account of the appellant and so the method of accounting whether cash or mercantile, has no bearing on the discussion of this issue. 9. We, however, have to hold that the other amounts of interest reflected on Sheet No. 41 of ₹ 28,97,000, ₹ 34,18,000 and ₹ 40,34,000 cannot be brought to tax in view of the contention that these amounts were not received and the relations with the debtor were strained. In view of the fact that there is no other corroborative evidence in support of the receipt of these amounts and there is nothing to contradict the claim of the appellant that the relations are strained and the recovery is in doubt, we have hold that these amounts are not includible in the assessment. The same holds good for the addition of ₹ 25,78,485 towards the interest for the period 1-1-1996 to 15-7-1996 on ₹ 2,66,46,000. These amounts are deleted. So the addition of ₹ 2,90,24,485 made by the Assessing Officer (2,64,46,000 + 25,78,485) is reduced to ₹ 1,60,97,000 being the outstandings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above sheet shows that the paper belongs to the appellant, because according to him "R.S." stands for "Radha Swamy", a cult said to be followed by the appellant and his family. He accordingly rejected the contention of the appellant that the paper was not in his hand and that he had nothing to do with the calculations made on the paper and it must have been left by some guest. 13. We have to delete the impugned additions aggregating to ₹ 20,32,241. We do not find any evidence connecting the appellant to this seized paper. Simply because a sheet of paper is found during the search at the premises of an assessee, he cannot be saddled with a tax liability unless it can conceivably be related to the assessee in some reasonable manner. The word "R.S." occurring on the paper is, to our mind, too tenuous to connect the appellant with the amount of ₹ 20,32,241 figuring in the paper. Accordingly, we delete the impugned additions of ₹ 18,75,284 and ₹ 1,56,957. 14. The next objection is to the two additions made by the Assessing Officer as per the following details :- Unexplained investment in undated original hundies ₹ 2,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest are at grave risk so far as recovery is concerned and so the impugned additions should be deleted. 17. We find that there is no evidence in the search material or elsewhere about the receipt of interest in respect of any of the above loans. Accordingly, we have to hold that the interest income has not accrued. We do not see, however, why the addition of ₹ 2,00,000, being the undated hundies in the name of M/s. Bhupendra Motors should also be deleted. As they are undated, they are to be considered as the income of the year in which the search was conducted and they were located. The contention of the appellant that M/s. Bhupendra Motors is not traceable is not acceptable to us inasmuch as no evidence to that effect has been produced before us. The appellant would not have advanced a loan of ₹ 2,00,000 without even knowing the whereabouts of the party. No material is advanced before us to dislodge the proof of the loan evidenced by the document of the original hundi located during the search. In this view of the matter, we sustain the addition of ₹ 2.00.000 made by the Assessing Officer, being the undated hundi issued by M/s. Bhupendra Motors, while we d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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