DCIT Cent. cir.-2(1),, Pune v. Shri Kantilal V Mali, Pune

ITA 224/PUN/2008 | misc
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 22424514 RSA 2008
Assessee PAN AAXPM9930G
Bench Pune
Appeal Number ITA 224/PUN/2008
Duration Of Justice 3 year(s) 7 month(s) 23 day(s)
Appellant DCIT Cent. cir.-2(1),, Pune
Respondent Shri Kantilal V Mali, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-09-2011
Date Of Final Hearing 20-07-2011
Next Hearing Date 20-07-2011
Assessment Year misc
Appeal Filed On 06-02-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I C SUDHIR JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO 224/PN/08 (BLOCK A. Y: 1996-9 7 TO 2002-03) DY. COMMISSIONER OF I.T. .. APPELLANT CEN. CIR. 2(1) PUNE VS SHRI KANTILAL VALAJI MALI .. RESPONDENT PROP. LAXMI SWEET CENTRE 501 RASTA PETH PUNE PAN AAXPM9930G AND ITA NO 56 & 55/PN/08 (BLOCK AY: 1996-97 TO 202-03) SHRI KANTILAL VALAJI MALI .. APPELLANT PUNE VS. DY. COMMISSIONER OF IT .. RESPONDENT CEN.CIR. 2(1) PUNE ASSESSEE BY: SHRI SUNIL PATH AK DEPARTMENT BY: SHRI HARESHWAR SHARMA ORDER PER G.S. PANNU AM SINCE COMMON ISSUES ARE INVOLVED IN THE CAPTIONED CROSS- APPEALS BY THE ASSESSEE AND THE REVENUE THEY WERE HEARD TOGETHER 2 ARE BEING DISPOSED OF BY A COMBINED ORDER FOR THE S AKE OF CONVENIENCE AND BREVITY. 2. WE SHALL FIRST DEAL WITH REVENUES APPEAL VIDE I TA NO 224/PN/08 AND CROSS APPEAL OF THE ASSESSEE VIDE ITA NO 56/PN/08 WHICH ARE DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME- TAX (APPEALS)-II PUNE DATED 03.10.2007 WHICH IN T URN HAVE ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER UNDE R SECTION 158BC OF THE INCOME-TAX ACT 1961 (IN SHORT THE ACT) P ERTAINING TO THE BLOCK ASSESSMENT YEARS 1996-97 TO 2002-03. 3. IN THIS CASE THE ASSESSEE IS AN INDIVIDUAL WHO IS A PR OPRIETOR OF M/S LAXMI SWEET CENTRE AND IS ALSO ENGAGED IN MONEY LENDING BUSI NESS. THERE WAS A SEARCH UNDER SECTION 132(1) OF THE ACT IN THE CASE OF THE ASSESSEE ON 7.3.2002. IN THE COURSE OF SEARCH CERTAIN INCRIMINATING MATERIA L NOTABLY TWO POCKET DIARIES A-1 AND A-2 WERE SEIZED WHICH CONTAINED THE DETAILS OF M ONEY LENDING BUSINESS CARRIED OUT BY THE ASSESSEE. IN RESPONSE TO A NOTICE ISSUE D UNDER SECTION 158BC OF THE ACT THE ASSESSEE FILED A RETURN OF INCOME FOR T HE BLOCK PERIOD DECLARING TOTAL UNDISCLOSED INCOME OF RS 87 75 353/- OUT OF WHICH A SUM OF RS 86.35.845/- REFLECTED UNDISCLOSED INCOME IN RESPECT OF THE MONEY LEND ING BUSINESS. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT DETERMINING THE TOTAL UNDISCLOSED INCOME AT RS 2 13 88 145/- WHICH WAS CHALLENGED IN APP EAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). THE COMMISSIONER O F INCOME-TAX (APPEALS) HAS GIVEN PARTIAL RELIEF TO THE ASSESSEE WHICH I S CONTESTED BY THE REVENUE IN ITS APPEAL VIDE ITA NO 224/PN/08 WHEREA S THE ASSESSEE HAS CONTESTED THE PART SUSTENANCE OF ADDITIONS BY THE COMM ISSIONER OF INCOME-TAX (APPEALS) VIDE ITS APPEAL ITA NO 56/PN/08. 4. ONE OF THE MAJOR ADDITION MADE BY THE ASSESSING OFF ICER AMOUNTING TO RS 1 04 64 154/- RELATED TO THE UNDISCLOSED INCOME FROM MONEY LENDING BUSINESS DECLARED BY THE ASSESSEE. IN ORDER TO APPRECIATE THE AF ORESAID THE RELEVANT FACTS 3 CAN BE SUMMARIZED AS FOLLOWS. THE TWO DIARIES SEIZED IN T HE COURSE OF SEARCH REVEALED DETAILS OF THE AMOUNT OF LOANS ADVANCED THE NAMES OF THE PERSONS TO WHOM LOANS WERE ADVANCED THE DATES ALONGWITH THE MON TH AND YEAR IN SOME CASES. THE SEIZED DOCUMENTS ALSO INCLUDED TWO INTEREST CALCU LATION SHEETS. THERE IS NO DISPUTE THAT SUCH MATERIAL REFLECTED MONEY LENDING TRANSACTIONS CARRIED OUT BY THE ASSESSEE AND INTEREST EARNED THEREIN WHICH WAS HITHERTO UNDISCLOSED. FROM SUCH BUSINESS THE ASSESSEE HAD DECLARED AN UNDISCLOSED INCOME PERTAINING TO THE BLOCK PERIOD OF RS 86 35 845/ -. IN COMPUTING SUCH INCOME THE ASSESSEE WORKED OUT AGGREGATE OF LOANS ADVANCE D AT RS 3 19 95 000/- AND AFTER REDUCING THE LOANS ADVANCED BY CHEQUE OF RS 38 LAKHS THE TOTAL CASH LOANS WERE COMPUTED AT RS 2 81 95 000/-. THE ASSESSEE EXPLAINED THAT THE INTEREST CHARGED BY HIM ON MONIES LENT VARIE D BETWEEN 12% OR 8% OR 24% AS EVIDENCED BY THE INTEREST SHEETS SEIZED IN THE CO URSE OF SEARCH. HOWEVER IN THE STATEMENT RECORDED UNDER SECTION 132(4) OF THE ACT THE ASSESSEE HAD EXPLAINED THAT ON MOST OF THE LOANS THE INTE REST CHARGED WAS AT THE RATE OF 18%. IN ARRIVING AT THE UNDISCLOSED INCOME FROM THE MONEY LENDING BUSINESS AS PER SEIZED MATERIAL IT WAS CANVASSED THAT SUCH BU SINESS WAS BEING CARRIED OUT EVEN DURING THE PERIOD PRIOR TO THE BLOCK PERIOD UNDER ASSESSMENT I.E. EVEN PRIOR TO 1.4.1995. THEREFORE AS PER THE A SSESSEE THE OPENING BALANCE AS ON 1.4.1995 AVAILABLE WITH THE ASSESSEE IN SUCH MONEY LENDING BUSINESS COULD NOT BE ASSESSED AS UNDISCLOSED INCOME FOR THE BLOCK PER IOD UNDER CONSIDERATION. ACCORDINGLY THE ASSESSEE WORKED OUT AN OPENI NG BALANCE OF RS 1 04 64 154/- AS ON 1.4.1995 AND CLAIMED THAT IT REFL ECTED INCOMES EARNED PRIOR TO THE BLOCK PERIOD AND THEREFORE THE SAME WAS NOT ASSE SSABLE IN THE IMPUGNED ASSESSMENT. THE OPENING BALANCE OF RS 1 04 64 154/- WAS W ORKED OUT BY THE ASSESSEE ON REGRESSION METHOD I.E. BY WORKING OUT THE I NTEREST BACKWARDS ON THE PRESUMPTION THAT WHOLE OF THE INTEREST RECEIVED AS WELL AS THE REPAYMENTS OF THE PRINCIPAL AMOUNT OF LOANS ARE PLOUGHED BACK IN THE MONEY LENDING BUSINESS 4 BY GIVING LOANS TO OTHER PARTIES. THE ASSESSEE FURNISHED A SUMMARIZED FUND FLOW STATEMENT BASED ON THE DIARIES SEIZED AS UNDER: RUPEES GROSS AMOUNT OF LOANS GIVEN( AS PER THE DIARIES) 3 19 9 5 000/- LESS: CHEQUE LOANS AS PER THE DIARIES 38 00 000/- TOTAL CASH LOANS AS PER THE DIARIES 2 81 95 000/- LESS: OPENING BALANCE CLAIMED (ON THE BASIS OF REGRESSION METHOD) 1 04 64 154/- CASH LOANS GIVEN DURING THE BLOCK PERIOD 1 77 30 846/- THE ASSESSEE DECLARED INTEREST RECEIVED FOR THE BLOCK PERI OD AT RS 1 78 60 845/- AND AFTER CLAIMING A DEDUCTION ON ACCOUNT OF IRRECOVERAB LE LOANS OF RS 92 95 000/- AS BAD DEBTS THE UNDISCLOSED INCOME FROM MO NEY LENDING BUSINESS WAS THUS COMPUTED FOR THE BLOCK PERIOD AT RS 86 35 846/ - WHICH WAS DECLARED IN THE RETURN FILED IN RESPONSE TO THE NOTICE ISSUED UNDE R SECTION 158BC OF THE ACT. 5. THE ASSESSING OFFICER OPINED THAT THE OPENING BALAN CE OF RS 1 04 64 154/- WAS COMPUTED BY THE ASSESSEE ON THE BASIS O F A MERE ARITHMETICAL EXERCISE AND SUCH CLAIM OF THE ASSESSEE WAS NOT VERIFIABLE W ITH REFERENCE TO THE NAMES OF THE PARTIES AMOUNT OF LOANS GIVEN AND THE D ATES ON WHICH SUCH LOANS WERE GIVEN. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEES CLAIM WAS BASED PURELY ON A PRESUMPTION THAT WHOLE OF THE INTER EST RECEIVED HAS BEEN REINVESTED IN MONEY LENDING ACTIVITIES FOR ADVANCING OF LOANS AND SUCH A PRESUMPTION COULD NOT BE ACCEPTED. NOTABLY THE ASSESSING O FFICER OBSERVED THAT THOUGH PRACTICALLY THE EXISTENCE OF CERTAIN OPENING BAL ANCE COULD NOT BE RULED OUT HOWEVER ACCORDING TO HIM THE PROBABILITY OF IN TRODUCTION OF NEW/ADDITIONAL CREDITS DURING THE BLOCK PERIOD COULD ALSO NOT BE RULED OUT. IN VIEW OF THE AFORESAID THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA OF THE ASSESSEE FOR EXCLUSION OF RS 1 04 64 154/- FROM THE INCOME FOR THE B LOCK PERIOD AND ACCORDINGLY AN ADDITION WAS MADE TO THAT EXTENT. 5 6. THE ADDITION SO MADE BY THE ASSESSING OFFICER WAS CARRI ED IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) WHEREIN THE ASSESSEE REITERATED HIS STAND WITH REGARD TO THE EXCLUSION OF RS 1 04 64 154/- FROM THE PURVIEW OF BLOCK ASSESSMENT. THE COMMISSIONER OF INCOME-TA X (APPEALS) ACCEPTED THE PLEA OF THE ASSESSEE AND ALSO FOUND MERIT I N THE REGRESSION METHOD ADOPTED BY THE ASSESSEE TO ARRIVE AT THE OPENING BALAN CE OF RS 1 04 64 154/- AS ON 1.4.1995. HOWEVER THE COMMISSIONER OF INCOME-TAX ( APPEALS) NOTICED THAT IN THE CASE OF SEVEN PARTIES THE RATE OF INTEREST WAS 12% AND IN CASE OF 51 PARTIES IT WAS 18% AND IN REMAINING 23 IT WAS 24%. IT WAS TH EREFORE INFERRED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT EVEN IN RELAT ION TO THE PARTIES FROM WHOM 12% RATE IS SHOWN INTEREST SHOULD BE CALCULATED AT THE RATE OF 18% AND ON THIS REVISED BASIS HE RECOMPUTED THE OPENING BALANCE AS O N 1.4.1995 ADOPTING REGRESSION METHOD. ACCORDINGLY HE DETERMINED THE OPENI NG BALANCE AS ON 1.4.1995 AT RS 97 93 199/- AS AGAINST RS 1 04 64.154/ - DETERMINED BY THE ASSESSEE AND ACCORDINGLY HE RETAINED AN ADDITION OF RS 6 70 965/- AND DELETED BALANCE OF RS 97 93 199/- OUT OF TOTAL ADDITION OF RS 1 04 64 154/- MADE BY THE ASSESSING OFFICER. 7. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS STRONGLY CONTESTED THE RELIEF ALLOWED BY THE COMMISSIONER OF IN COME-TAX (APPEALS) TO THE EXTENT OF RS 97 93 199/-. IT IS POINTED OUT THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN ALLOWING SUCH A RELIEF I NASMUCH AS THE REGRESSION METHOD ADOPTED BY THE ASSESSEE WAS A MERE MATHEMATICAL E XERCISE WITHOUT THERE BEING ANY EVIDENCE OR MATERIAL TO VERIFY SUCH AM OUNT. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE COMMI SSIONER OF INCOME-TAX (APPEALS) COMPLETELY LOST SIGHT OF THE FACT THAT THE ASSE SSEE COULD HAVE ALSO GENERATED UNACCOUNTED INCOME FROM ITS SWEET BUSINESS WHICH COULD BE UTILISED FOR CARRYING ON THE MONEY LENDING BUSINESS AND THEREFO RE THE PRESUMPTION MADE BY THE ASSESSEE THAT WHOLE OF INTEREST RECEIVED AS W ELL AS LOANS REPAID WERE PLOUGHED BACK IN MONEY LENDING BUSINESS IN ORDER TO CALCULATE OPENING 6 BALANCE AS ON 1.4.1995 BY REGRESSION METHOD IS NOT JUS TIFIED. IN THIS CONTEXT THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO REFERRED TO THE STATEMENT RENDERED BY THE ASSESSEE UNDER SECTION 132(4) OF THE ACT A COPY OF WH ICH HAS BEEN PLACED IN THE PAPER BOOK. THE LEARNED DEPARTMENTAL REPRESENTAT IVE HOWEVER STATED THAT THOUGH CERTAIN MATERIAL SEIZED INDICATED EXISTENCE OF MO NEY LENDING BUSINESS EVEN PRIOR TO THE BLOCK PERIOD YET IT DOES NOT JUSTIFY THE OPENING BALANCE OF RS 1 04 64 154/- DETERMINED BY THE ASSESSEE ON REGRESSION B ASIS. IT WAS THEREFORE CONTENDED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ACCEPTING THE PLEA OF THE ASSESSEE OF EXCLUDING A SUM OF RS 1 04 64 000/- FROM THE PURVIEW OF BLOCK ASSESSMENT ON ACCOUNT OF THE SAME HAVING BEEN EARNED FROM THE MONEY LENDING BUSINE SS PRIOR TO THE BLOCK PERIOD. 8. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASS ESSEE VEHEMENTLY SUBMITTED THAT IN PRINCIPLE THE COMMISSIONER OF INCOME- TAX (APPEALS) WAS JUSTIFIED IN ACCEPTING THE PLEA OF THE ASSESSEE THAT CERTA IN AMOUNT OF INCOME FROM MONEY LENDING BUSINESS WAS EARNED PRIOR TO 1.4.1995 WHI CH WAS NOT INCLUDIBLE IN THE IMPUGNED ASSESSMENT FOR THE BLOCK PERIOD. FIRSTLY IT IS SUBMITTED THAT EVEN IN THE STATEMENT MADE BY THE ASSESSEE UNDER SECTION 132(4) O F THE ACT IT WAS POINTED OUT THAT THE BUSINESS OF ADVANCING LOANS/MONEY L ENDING WAS BEING CARRIED OUT FOR THE LAST 15 TO 20 YEARS. IT WAS ALSO SUBM ITTED THAT THE ASSESSEE HAD EXPLAINED THAT THE SEIZED DIARY A1WAS WRITTEN SOME WHERE IN THE YEAR 1995 WHEN THE ASSESSEE AND HIS BROTHERS HAD SEPARATED FROM THE BUSINESS. IN THIS REGARD REFERENCE WAS MADE TO COPY OF THE STATEMENT REC ORDED UNDER SECTION 132(4) SPECIFICALLY TO PAGE 137 OF THE PAPER BOOK. IT W AS THEREFORE ARGUED THAT THE DEPOSITION MADE IN THE STATEMENT UNDER SECTION 132( 4) HAS T BE ACCORDED EVIDENTIARY VALUE OF THE FACT THAT THE ASSESSEE WAS CARR YING ON MONEY LENDING BUSINESS SINCE 15 TO 20 YEARS I.E. EVEN PRIOR TO THE BL OCK PERIOD UNDER CONSIDERATION. 7 9. FURTHER IN THE COURSE OF THE HEARING THE LEARNED REPRESENTATIVE REFERRED TO THE COPIES OF THE SEIZED DIARY WHICH HAVE BEEN PL ACED IN THE PAPER BOOK AT PAGES 43 TO 48 TO CONTEND THAT FEW OF THE ENTRIES PER TAIN TO THE PERIOD PRIOR TO 1.4.1995. ONE SUCH INSTANCE WAS LOAN GIVEN TO VANECHAND DURGAJI MALI WHO HAD EXPIRED ON 18.7.1993 AND IT WAS SUBMITTED THAT FROM T HIS IT WAS CLEAR THAT THE LOAN WOULD HAVE BEEN GIVEN PRIOR TO HIS DEATH. IT WA S ALSO POINTED OUT THAT PAGES 11 TO 12 OF THE DIARY A1 WHICH WAS WRITTEN IN 1995 CONT AINED DETAIL OF LOANS WHICH WERE ALREADY GIVEN AND WERE OUTSTANDING AS ON DI WALI 1994/JANUARY 1995.IT WAS THEREFORE CONTENDED THAT IN PRINCIPLE TH ERE COULD NOT BE A DISPUTE THAT THE ASSESSEE WAS IN THE BUSINESS OF ADVANCING LOANS OR MONEY LENDING EVEN PRIOR TO 1.4.1995. IN THIS CONNECTION REFERENCE WAS MA DE TO PARA 4.2 OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WHEREIN VA RIOUS INSTANCES OF LOANS ADVANCED BY THE ASSESSEE PRIOR TO THE BLOCK PERIOD HAVE BE EN LISTED OUT AND THAT THE SAME HAS NOT BEEN FACTUALLY ASSAILED BY THE REVENUE . 10. IN THE COURSE OF THE HEARING THE LEARNED COUNSEL FOR THE ASSESSEE ALSO INVITED OUR ATTENTION TO THE STATEMENTS/AFFIDAVITS/LET TERS WRITTEN BY FEW OF THE PERSONS WHEREIN THEY HAD CLARIFIED THAT THE LOANS WERE RAISED BY THEM FROM THE ASSESSEE EVEN PRIOR TO THE BLOCK PERIOD COPIES OF SUCH COMMUN ICATIONS HAVE BEEN PLACED IN THE PAPER BOOK. IN FACT OUR ATTENTION WAS INVITED TO CERTAIN OBSERVATIONS OF THE ASSESSING OFFICER IN PARA 4.26 OF THE ASSESSMENT ORDER WHEREIN THE ASSESSING OFFICER HAS ACCEPTED THAT SOME AMOUN T OF OPENING BALANCE HAS TO BE THERE. THE LEARNED COUNSEL ALSO SUBM ITTED THAT IF THE STAND OF THE ASSESSING OFFICER OF INCLUDING THE ENTIRE AMOUNT OF R S 1 04 64 154/- AS INCOME OF THE BLOCK PERIOD IS TO BE ACCEPTED IT WOULD M EAN THAT THE ASSESSEE WOULD HAVE CHARGED HUGE AMOUNT OF INTEREST AS MUCH AS 125% SO AS TO ACCUMULATE CASH LOANS OF RS 2.82 CRORES IN THE BLOCK PERI OD WHICH WAS CERTAINLY AN ABSURD SITUATION. 8 11. WITH REGARD TO THE PLEA OF THE LEARNED DEPARTME NTAL REPRESENTATIVE REGARDING EARNING OF UNACCOUNTED INCOME IN SWEET BUSINE SS WHICH COULD HAVE BEEN DEPLOYED FOR MONEY LENDING ACTIVITIES THE LEARN ED COUNSEL VEHEMENTLY POINTED OUT THAT THERE WAS NO EVIDENCE FOUND IN THE CO URSE OF SEARCH THAT ANY UNACCOUNTED INCOME WAS GENERATED IN THE SWEET BUSINESS CAR RIED ON BY THE ASSESSEE. IN THIS CONNECTION OUR ATTENTION HAS BEEN INVIT ED TO PAGES 118 AND 119 OF THE PAPER BOOK WHICH ARE STATEMENTS OF INCOME F ROM SWEET BUSINESS DECLARED BY THE ASSESSEE WHICH CONTAIN MEAGRE AMOUNTS AND CANNOT JUSTIFY HE LEVEL OF AMOUNTS INVOLVED IN THE MONEY LENDING BUSINE SS. IN THE END THE LEARNED COUNSEL RELIED UPON THE DECISION OF THE HONBLE RAJASTH AN HIGH COURT IN THE CASE OF CIT V. BHER LAL BOHARA 4 DTR 243 WHEREIN A SIMILA R ISSUE WAS INVOLVED AND THE HONBLE HIGH COURT HAD UPHELD THE DECISION OF TH E TRIBUNAL TO GRANT BENEFIT FOR THE OPENING BALANCE WHILE ASSESSING THE INCOME FROM M ONEY LENDING BUSINESS IN A BLOCK ASSESSMENT. APART THEREFROM RELIANCE HAS BEEN PLACED ON THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN TH E CASE OF BALDEV KRISHAN KAPOOR V. ACIT 68 ITD 37 (CHD) (TM) AND OF THE JOD HPUR BENCH IN THE CASE OF MANGILAL RAMESHWARLAL SONI (HUF) V. ACIT 83 TTJ 773 (JODH) TO POINT OUT THAT WHILE DETERMINING THE INCOME DUE ALLOWANCE FOR THE S EAD CAPITAL IS PERMISSIBLE. IT WAS THEREFORE CONTENDED THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN RE JECTING THE PLEA OF THE ASSESSEE FOR EXCLUDING OF THE OPENING BALANCE OF RS 1 04 64 154/-. 12. EVEN WITH REGARD TO THE PART SUSTAINING OF ADDIT ION BY THE COMMISSIONER OF INCOME-TAX (APPEALS) WHICH IS AGITATED BY THE ASSESSEE IN ITS APPEAL THE LEARNED COUNSEL SUBMITTED THAT THE WORKING DONE BY TH E COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT CLEAR. THE COMMISSIONER OF I NCOME-TAX (APPEALS) HAS REWORKED THE OPENING BALANCE BY ADOPTING THE RA TE OF 18% INSTEAD OF 12%; SO HOWEVER THE LEARNED COUNSEL POINTED OUT THAT EV EN THE WORKING DONE BY THE ASSESSEE WAS BASED ON 18%. OSTENSIBLY INEXPLICABILITY IN TH E WORKING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS ASSAILED. 9 13. IN REPLY THE LEARNED DEPARTMENTAL REPRESENTATIV E POINTED OUT THAT THE ONUS WAS CLEARLY ON THE ASSESSEE TO ESTABLISH THAT AS ON 1.4.1995 THE IMPUGNED AMOUNT WAS AVAILABLE FROM THE INCOME EARNED IN THE PERIOD PRIO R TO THE BLOCK PERIOD AND THE SAME HAS NOT BEEN DEMONSTRATED BY THE ASSESSEE AND THEREFORE THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING THE ADDITION. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE RELEVANT MA TERIAL PLACED IN THE PAPER BOOK REFERENCES TO WHICH HAVE BEEN MADE IN THE COURSE OF THE HEARING. THE SUM AND SUBSTANCE OF THE DISPUTE RELATES TO THE DETERMINATION O F INCOME FROM MONEY LENDING BUSINESS CARRIED ON BY THE ASSESSEE WHICH WAS HITHERTO UNDI SCLOSED. THE PRECISE DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE RELATES TO THE ASSESSEES CLAIM OF RS 1 04 64 154/- BEING THE OPENING BALANCE OF LOANS ADV ANCED AS ON 1.4.1995. THE ASSESSEE WAS NOT FOUND MAINTAINING ANY REGULAR BOOKS OF ACCO UNT FOR SUCH BUSINESS AND THE INCOME OF THE BLOCK PERIOD FROM SUCH BUSINESS WAS CO MPUTED BY THE ASSESSEE ON THE BASIS OF THE TWO DIARIES A-1 AND A-2 AND PHOTO COPIES OF TWO INTEREST SHEETS FOUND AND SEIZED BY THE DEPARTMENT AT THE TIME OF SE ARCH. ON THE BASIS OF AFORESAID MATERIAL THE ASSESSEE WORKED OUT THE OPENING BALANCE OF LOANS OUTSTANDING AS ON 1.4.1995. THE ASSESSING OFFICER REJECTED THE PLEA OF TH E ASSESSEE ALTOGETHER ON THE GROUND THAT THE SAID SUM WAS UNVERIFIABLE FROM THE SE IZED MATERIAL INASMUCH AS THE SEIZED MATERIAL DID NOT SHOW THE NAMES OF THE PARTIES OR THE AMOUNT OF LOANS ADVANCED ETC. AS ON 1.4.1995. IN OUR CONSIDERED OPINION THE AF ORESAID STAND OF THE ASSESSING OFFICER IS QUITE UNJUSTIFIED. IN FACT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS SUCCINCTLY APPRECIATED THE FACTUAL POSITION AND HAS INFERRE D THAT THE ASSESSEE WAS INDEED CARRYING ON BUSINESS OF ADVANCING LOANS PRIOR TO 3 1.3.1995 ALSO. THE PERTINENT DISCUSSION IN PARA 4.2 OF THE ORDER READS AS UNDER: 4.2 THERE IS NO DISPUTE THAT THE APPELLANT WAS CAR RYING ON THE BUSINESS OF ADVANCING LOANS PRIOR TO 31.3.1995 AS IS EVIDENT FROM THE RET URN OF INCOME AND AUDITED ACCOUNTS FILED FOR THE AY 1995-96 WHEREIN THE INCOME FROM IN TEREST WAS SHOWN ON ACCOUNT OF LOANS ADVANCED. TWO CHEQUES OF RS 50 000/- EACH WERE ADVA NCED TO MR VINOD JAIN SON OF SHRI RAICHAND G JAIN WHICH WAS INCLUDED IN THE ENTR Y OF LOAN OF RS 6 LAKHS GIVEN TO SHRI RAICHAND G JAIN. THE APPELLANT ALSO FILED AN AFFIDA VIT OF SHRI RAICHAND JAIN CONFIRMING THE TRANSACTION. SUCH LOANS WERE ALSO ADVANCED IN C ASH OUTSIDE THE BOOKS OF ACCOUNTS 10 PRIOR TO 1.4.1995 IS CORROBORATED BY ENTRY OF LOANS TO ROOPI BAA RAJU WHO EXPIRED ON 23.2.1986 VABECGABD DYRGAJI MALI WHO EXPIRED ON 18 TH JULY 1993 AND WHOSE ENTRY APPEARED AT SR. NO 91 OF A-1 DIARY THE STATEMENT U /S 131 OF SHRI BHOONENDRA AGARWAL SHRI SUKHLAL B SHARMA AND AFFIDAVITS/LETTER OF OTHE RS. THE DIARY A-1 IS 1994 DIARY WHICH SHOWED THE DETAILS OF LOANS WHICH HAD ALREADY BEEN GIVEN AND WERE OUTSTANDING AS ON DIWALI 1994/JANUARY 1995 FURTHER SHOWED THAT THE A SSESSEE WAS IN POSSESSION OF PRINCIPLE AMOUNT PRIOR TO 1.4.1995. 15. IN VIEW OF THE AFORESAID DISCUSSION BY THE COMMISSIONE R OF INCOME-TAX (APPEALS) WHICH HAS NOT BEEN CONTROVERTED IN ANY MANNER WE FIND OURSELVES UNABLE TO UPHOLD THE PLEA OF THE ASSESSING OFFICER THAT THERE WAS NO OPENING BALANCE OF OUTSTANDING LOANS AS ON 1.4.1995 IN FACT THE ASSESSEE HAS BEEN CONSISTENTLY MA INTAINING EVEN IN THE COURSE OF HIS STATEMENT RECORDED UNDER SECTION 132(4) OF THE A CT THAT HE HAS BEEN CARRYING ON THE BUSINESS OF ADVANCING LOANS FOR ABOUT LAST 15 TO 20 YEARS. THE SAID ASSERTION WHICH IS BORNE OUT BY THE FACTUAL MATERIAL REFERRED TO BY T HE COMMISSIONER OF INCOME-TAX (APPEALS) CLEARLY ESTABLISHES THE EXISTENCE OF MONEY LEND ING BUSINESS EVEN PRIOR TO BLOCK PERIOD I.E. PRE -1.4.1995. UNDER THESE CIRCUMSTA NCES THEREFORE THE AMOUNT OF INCOME EARNED AND DEPLOYED IN SUCH BUSINESS PRIOR TO 1. 4.1995 CANNOT BE ASSESSED AS UNDISCLOSED INCOME FOR THE BLOCK PERIOD UNDER CONSIDERATIO N WHICH IS COMPRISING OF ASSESSMENT YEARS 1996-97 TO 2002-03. HAVING REGARD TO TH E MEANING OF BLOCK PERIOD AND UNDISCLOSED INCOME CONTAINED IN SECTION 158B(A) AN D 158B(B) OF THE ACT RESPECTIVELY AN ASSESSMENT UNDER CHAPTER XIV-B OF THE A CT IS CONFINED TO THE UNDISCLOSED INCOME RELATING TO THE BLOCK PERIOD. IF ANY ENTRY REFLECTING UNDISCLOSED INCOME IS FOUND DURING SEARCH BUT IF IT DOES NOT RELATE TO THE SPECIFIED BLOCK PERIOD THE SAME WOULD NOT FORM A PART OF ASSESSMENT UNDER CHAPTER XIV-B OF THE ACT. IN THESE CIRCUMSTANCES WE HAVE TO NOW EXAMINE THE AMOUNT COMPUTED BY THE ASSESSEE AS THE LOANS OUTSTANDING AS ON 1.4.1995 SO AS TO EXCLUDE THE SAME FROM THE PURVIEW OF THE IMPUGNED ASSESSMENT OF THE BLOCK PERIOD COMPRISING OF ASSESS MENT YEARS 1996-97 TO 2002-03. THE ASSESSEE HAS COMPUTED THE LOANS OUTSTANDIN G AS ON 1.4.1995 ON THE BASIS OF AN ARITHMETICAL REGRESSION METHOD WHEREIN THE INTEREST WAS WORKED OUT BACKWARDS ON THE PRESUMPTION THAT WHOLE OF INTEREST RECE IVED AS WELL AS REPAYMENT OF THE PRINCIPAL AMOUNTS OF LOANS ARE PLOUGHED BACK IN THE MONEY LENDING ACTIVITIES BY GIVING THE LOANS TO VARIOUS PARTIES. THE COMMISSIONER O F INCOME-TAX (APPEALS) HAS ALSO 11 EXAMINED SUCH WORKING. IN PARA 4 OF HIS ORDER IT IS ST ATED THAT IN ORDER TO CONFIRM THAT THERE ARE NO OTHER CREDITS INTRODUCED DURING THE BLOCK P ERIOD THE DIARIES SEIZED WERE VERIFIED WITH THE INTEREST SHEETS. THE FUND FLOW STATEM ENT WHICH HAS BEEN REPRODUCED BY US IN EARLIER PART OF THIS ORDER HAS SINCE BEEN VERI FIED BY THE COMMISSIONER OF INCOME-TAX (APPEALS). IN THIS REGARD THE COMMISSIONER O F INCOME-TAX (APPEALS) HAS IN PRINCIPLE UPHELD THE ADOPTION OF REGRESSION METHOD BY THE ASSESSEE TO ASCERTAIN THE OUTSTANDING LOANS AS ON 1.4.1995 AND THE FOLLOWING D ISCUSSION IS RELEVANT IN THIS REGARD:- 4.3 THE AO HAS ACCEPTED THE ARITHMETICAL REGRESSIO N METHOD OF THE APPELLANT FOR WORKING OUT THE UNDISCLOSED INCOME IN RESPECT OF SA HUKARI BUSINESS OF THE BLOCK PERIOD WHICH HAS BEEN WORKED OUT AT RS 86 35 845/- IN THE BLOCK ASSESSMENT ORDERS. HOWEVER THE REVERSE CALCULATION MADE BY THE ASSESSEE ARE ST ILL STATED TO BE ONLY THEORETICAL FOR CALCULATION OF OPENING BALANCE AS ON 1.4.1995. THE AGGREGATE OF THE BALANCES OUTSTANDING AT THE BEGINNING OF THE BLOCK PERIOD WA S IN FACT RS 1.18 CRORES AND THE LIST OF THESE BALANCES WAS ENCLOSED BY THE APPELLANT IN LET TER DT 4 TH MARCH 2004. THE AMOUNT OF RS 2 81 95 000/- ADVANCED IN CASH OUTSIDE THE BOOKS OF ACCOUNTS IS FIXED AS ON THE DATE OF SEARCH. THE ENTRIES WHERE THE LOAN HAS BEEN RECE IVED BACK ARE CIRCLED. THE INTEREST WAS CALCULATED ON THE BASIS OF RATES GIVEN. 4.4 THERE COULD BE ONLY TWO FOLD OBJECTIONS OF THE AO TO HOLD THAT THE CALCULATIONS WERE THEORETICAL AND HYPOTHETICAL. IF THE PRESUMP TION IS THAT THE ENTIRE AMOUNT OF INTEREST ON LOAN RECEIVED BACK IS NOT REINVESTED AND SOME AM OUNT WAS WITHDRAWN IN THAT CASE THE OPENING BALANCE AS ON 1.4.95 WOULD INCREASE FROM RS 1 04 64 154/- BY THE SAME AMOUNT AS IS SAID TO HAVE BEEN WITHDRAWN. IN CASE THE AOS CONTENTION IS THAT ANY FURTHER AMOUNT WAS INTRODUCED FROM OUTSIDE THE BOOKS OF ACCOUNTS THERE IS NO SUCH PROOF WITH THE AO DURING THE COURSE OF SEARCH AND THE AMOUNT ON THE D ATE OF SEARCH IS ALREADY FIXED AS STATED ABOVE. IT IS TRITE LAW THAT THE INCOME IS TO BE COMPUTED ON THE BASIS OF MATERIAL SEIZED DURING THE SEARCH PROCEEDINGS AND THE AO IS NOT CONFERRED WITH THE POWER TO MAKE ESTIMATION OF INCOME DEHORS HE MATERIAL SEIZED AND IN HIS POSSESSION. AFTER THE AMENDMENT IN SECTION 158BB THE ACT MAKES IT CLEAR T HAT THE COMPUTATION OF THE UNDISCLOSED INCOME IF ANY IS TO BE BASED N THE E VIDENCE FOUND AS A RESULT OF SEARCH REQUISITION OF BOOKS OF ACCOUNTS AND SUCH OTHER MAT ERIAL OR INFORMATION AVAILABLE WITH THE AO. IN CASE UNDER SECTION TWO INCRIMINATING DIARIES A-1 & A-2 AND INTEREST CALCULATION SHEETS ARE AVAILABLE WITH THE AO AND EXCEPT THESE D IARIES AND INTEREST SHEETS THERE WAS NO MATERIAL OR INFORMATION TO SHOW THAT THE APPELLA NT HAD EITHER EARNED ANY INCOME OVER AND ABOVE THE INCOME SHOWN IN THESE DIARIES OR THAT THERE WERE FURTHER AMOUNTS RECEIVED/EARNED OUTSIDE THE BOOKS OF ACCOUNTS WHICH WERE INVESTED. IN OUR VIEW THERE IS SUFFICIENT MATERIAL ON RECORD TO JUSTIFY THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR ACCEPTING THE C ALCULATION TO ARRIVE AT THE OPENING BALANCE OF OUTSTANDING LOANS AS ON 1.4.1995. H OWEVER THE COMMISSIONER OF INCOME-TAX (APPEALS) OBSERVED THAT IN ORDER TO CARRY OU T SUCH EXERCISE THE INTEREST BE ASCERTAINED ON THE BASIS OF 18% AND NOT 12% AS DONE IN SO ME OF THE CASES. HE HAS 12 ACCORDINGLY WORKED OUT THE OPENING BALANCE AT RS 97 93 1 99/- AS AGAINST RS 1 04 64 154/- CLAIMED BY THE ASSESSEE. IN OUR CONSIDERED OPINION THE CASE MADE OUT BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IS QUITE RE ASONABLE AND DOES NOT REQUIRE ANY INTERFERENCE FROM OUR SIDE EXCEPT SUBJECT TO VERIF ICATION OF THE FIGURES AS THE ASSESSEE HAS RAISED A DOUBT ABOUT THE CALCULATIONS CARRIED O UT BY THE COMMISSIONER OF INCOME-TAX (APPEALS). THE PRIMARY ARGUMENT OF THE LEA RNED DEPARTMENTAL REPRESENTATIVE BEFORE US WITH REGARD TO THE WORKING O UT OF THE OPENING BALANCE WAS THAT THE UNDISCLOSED INCOME EARNED FROM THE SWEET BUSINESS ALSO WOULD HAVE BEEN UTILIZED BY THE ASSESSEE IN THE MONEY LENDING ACTIVITIES. IN THIS CONNECTION WE FIND THAT IN THE BLOCK RETURN FILED BY THE ASSESSEE UNDISCLOSED INCOM E FROM ACTIVITIES OTHER THAN THE MONEY LENDING WAS DECLARED AT RS 1 39 508/- WHICH I NCLUDED THE SWEET BUSINESS. THE ASSESSING OFFICER HAS ASSESSED SUCH INCOME AT RS 2 54 17 5/- THEREBY MAKING AN ADDITION OF RS 1 14 667/- ON ACCOUNT OF ACTIVITIES OTH ER THAN MONEY LENDING BUSINESS. QUITE CLEARLY UNDISCLOSED INCOME DECLARED BY THE ASSESSEE AND THEREAFTER ASSESSED BY THE ASSESSING OFFICER FROM THE SWEET BUSINESS IS QUITE INSI GNIFICANT AND IN OUR VIEW THE SAME WOULD NOT VITIATE THE WORKINGS MADE BY THE ASSESSEE AND ACCEPTED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN PRINCIPLE FOR AR RIVING AT THE OPENING BALANCE AS ON 1.4.1995 OF THE LOANS OUTSTANDING IN THE MONEY L ENDING BUSINESS. MOREOVER ON THIS ASPECT WE MAY ALSO REFER TO THE ASSERTION OF THE C OMMISSIONER OF INCOME-TAX (APPEALS) CONTAINED IN PARA 4 OF THE IMPUGNED ORDER W HEREIN HE VERIFIED THE SEIZED RECORDS TO CONFIRM THAT THERE ARE NO NEW/ADDITIONAL CREDITS INTRODUCED DURING THE BLOCK PERIOD. THIS ASSERTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT NEGATED ON THE BASIS OF ANY COGENT MATERIAL BUT ONLY A SURMISE. 16. IN VIEW OF THE AFORESAID DISCUSSION WE THEREFORE D ISMISS THE GROUND RAISED BY THE REVENUE. IN SO FAR AS THE GROUND RAISED BY THE ASSE SSEE IN IT CROSS APPEAL IS CONCERNED THE SAME IS ALLOWED FOR STATISTICAL PURPOSES IN ASMUCH AS THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE WORKING OF THE OPENI NG BALANCE OF OUTSTANDING LOANS AS ON 1.4.1995 IN THE LIGHT OF THE MISTAKE SOUGHT TO BE P OINTED OUT BY THE ASSESSEE. THIS 13 EXERCISE SHALL BE CARRIED OUT BY THE ASSESSING OFFICER AFTER ALLOWING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD IN THE MATTER. 17. THE NEXT GROUND RAISED BY THE REVENUE IS WITH RE GARD TO THE ACTION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IN DELETING AN ADD ITION OF RS 13 50 000/- MADE BY THE ASSESSING OFFICER BY DISALLOWING THE CLAIM OF LOSS IN RESPECT OF IRRECOVERABLE LOANS PERTAINING TO SHRI KHANGARJI KHANGARMAL BHUTAJ I SUNDESHA. 18. ON THIS ASPECT THE BRIEF FACTS ARE AS FOLLOWS. WHI LE DETERMINING ITS UNDISCLOSED INCOME FROM THE MONEY LENDING BUSINESS THE ASSESSEE HAD CL AIMED DEDUCTION FOR IRRECOVERABLE LOANS OF RS 92 95 000/-. OUT OF SUCH CLAIM THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS 18 50 000/- PERTAINING TO SHRI KHANGARMAL SUNDESHA RS 13 50 000/- AND SHRI TARJI MALI - RS 5 00 000/-. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS SINCE ALLOWED THE CLAIM FOR THE SUM OF RS 13 50 000/- PERTAINING TO SHRI KHANGARMAL SUNDESHA AND SUSTAINED THE DISALLOWANCE OF R S 5 00 000/-. THE REVENUE IN ITS APPEAL HAS CONTESTED THE RELIEF ALLOWED BY THE C OMMISSIONER OF INCOME-TAX (APPEALS) WHEREAS THE ASSESSEE BY WAY OF CROSS GROUND NOS ( 1) & (2) HAS ASSAILED THE ADDITION OF RS 5 00 000/- CONFIRMED BY THE COMMISSI ONER OF INCOME-TAX (APPEALS). SINCE THE CONTROVERSY IN THE CROSS-GROUNDS IS SIMILAR THE S AME ARE BEING TAKEN UP TOGETHER. 19. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIV E POINTED OUT THAT THE ASSESSING OFFICER IS JUSTIFIED IN DISALLOWING THE AFORESAID AMOUNTS AS SUCH CLAIM WAS NOT PROVED ON THE BASIS OF THE SEIZED DOCUMENTS. IT WAS ALSO P OINTED OUT THAT BOTH THE PERSONS WERE LIVING PERSONS AND CARRYING OUT SOME INCOME GENERATING ACTIVITY AND THERE WAS CHANCES OF RECOVERY AND THE SAME COULD NOT BE TREATED AS IRRECOVERABLE LOANS. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER POINTED OUT THAT THERE WAS NO MATERIAL TO SHOW THAT CORRESPONDING INCOME HAS ALSO SUFFERED TAX DU RING THE RELEVANT PERIOD AND THEREFORE THERE WAS NO JUSTIFICATION FOR ALLOWING THE BAD DEBTS ON ACCOUNT OF IRRECOVERABILITY OF LOANS. 14 20. ON THE OTHER HAND THE LEARNED COUNSEL APPEARIN G FOR THE ASSESSEE HAS CONTENDED THAT THE ENTIRE AMOUNT OF RS 18 50 000/- WA S WRONGLY DISALLOWED BY THE ASSESSING OFFICER. IT IS POINTED OUT THAT THE SEIZED MATE RIAL ITSELF SHOWS THAT THE IMPUGNED AMOUNTS WERE IRRECOVERABLE AND THE SAME WAS AL LOWABLE AS A BAD DEBT/LOSS SUFFERED IN MONEY LENDING BUSINESS. WITH REGARD TO THE PLEA OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT IT WAS NOT CLEAR WHET HER THE CORRESPONDING INCOME HAS BEEN ASSESSED IN THE BLOCK PERIOD THE LEARNED COUNSEL POINTED OUT THAT THERE WAS NO SUCH ADVERSE FINDING IN THE ORDERS OF THE AUTHORITIE S BELOW AND THE SAME WAS A NEW PLEA BEING RAISED AT THIS STAGE WHICH WAS IMPERMISSIBLE. EVEN OTHERWISE IT IS SOUGHT TO BE POINTED OUT WITH REFERENCE TO PAGE 65 OF THE PAPE R BOOK WHICH IS COPY OF THE SEIZED DIARY WHEREIN PARTICULAR ENTRY IN RELATION TO KHANGA RJI BHUTAJI SUNDESHA IS DEMONSTRATED TO BE PERTAINING TO THE BLOCK PERIOD WHICH HAS BEEN TA KEN INTO ACCOUNT WHILE COMPUTING THE INCOME FROM SUCH BUSINESS. IT IS FURTHER POINTED OUT THAT THE VERIFICATION EXERCISE CARRIED OUT BY THE ASSESSING OFFICER CLEARLY SHOWED THE I RRECOVERABILITY OF THE AFORESAID AMOUNTS AND THEREFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN MERELY ALLOWING SUM OF RS 13 50 000/- PERTAINING TO S HRI KHANGARJI KHANGARMAL BHUTAJI SUNDESHA AND NOT THE BALANCE OF RS 5 LAKHS PERTAINING T O SHRI TARJI MALI. 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN SO FAR AS THE ASSESSEES CLAIM FOR IRRECOVERABILITY OF RS 5 LAKHS ADVANCED T O SHRI TARJI MALI IS CONCERNED WE FIND THAT THE SAID PERSON WAS SUMMONED IN RESPONSE TO WHICH AN AFFIDAVIT WAS FURNISHED. IN THE SAID AFFIDAVIT HE HA S AFFIRMED RAISING OF LOAN FROM THE ASSESSEE AND HAS ALSO AVERRED THAT DUE TO FINANCIAL CONSTRAINS AND DISTRESS HE IS UNABLE TO PAY BACK THE LOAN OR INTEREST AMOUNT. I N THESE CIRCUMSTANCES THERE IS NO MATERIAL ON RECORD TO DISAGREE WITH THE ASS ERTION OF THE ASSESSEE THAT THE AMOUNTS ARE IRRECOVERABLE. IN OUR VIEW THE UNDISCL OSED INCOME ASSESSABLE IN THE BLOCK ASSESSMENT HAS TO BE BASED ON APPROPRIATE MAT ERIAL AND CONSIDERATIONS AND IN THE INSTANT SITUATION IT IS CLEA R THAT SUCH AMOUNT IS NOT IN CONTROL OF THE ASSESSEE THOUGH THE ASSESSEE MAY NOT BE IN A POSITION TO LEAD CLINCHING EVIDENCE IN SUPPORT OF THE BAD DEBT. IN OUR O PINION THE AMOUNT IN 15 QUESTION IS NOT ASSESSABLE AS UNDISCLOSED INCOME IN THE BLOCK ASSESSMENT FOR THE ASSESSMENT YEARS 1996-97 TO 2002-03. THUS THE ASSESSEE HAS TO SUCCEED IN ITS GROUND. 22. AS REGARDS THE DELETION OF THE ADDITION OF RS 13 5 0 000/- WE DO NOT FIND ANY INFIRMITY IN THE FOLLOWING FINDINGS OF THE COMMI SSIONER OF INCOME-TAX (APPEALS): IN THE CASE OF KHANGARJI KHANGARMAL BHUTAJI SUNDESH A HE DENIED ANY FINANCIAL TRANSACTION WITH THE ASSESSEE. HIS STATEMENT WAS RE CORDED AT THE TIME OF SEARCH ALSO WHEN HE HAD DENIED ANY TRANSACTIONS WITH THE APPELL ANT. THE AO THEREFORE IS NOT CORRECT IN DISALLOWING THIS AMOUNT FOR OTHERWISE THE AMOUNT WOULD HAVE TO BE TAKEN OUT AS HAVING BEEN NOT ADVANCED ERODING THE PRINCIPLE AMOUNT AND INTEREST TO THAT EXTENT. WE ACCORDINGLY AFFIRM HIS DECISION. REVENUE FAILS ON THI S GROUND. 23. THE LAST GROUND RAISED BY THE REVENUE IS WITH REG ARD TO THE LEVY OF SURCHARGE WHICH HAS BEEN SET ASIDE BY THE COMMISSIONER OF INCOME-TAX (APPEALS) FOLLOWING THE DECISION OF OUR CO-ORDINATE BEN CH IN THE CASE OF MRS ARUNA M KATARA V DCIT 82 TTJ 363. HOWEVER AT THE TI ME OF HEARING IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT THE DECISION OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS LIABLE TO BE REVERSED IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V SURESH N GU PTA 297 ITR 322 (SC). ACCORDINGLY THIS GROUND OF THE REVENUE IS ALLOWED. 24. IN THE RESULT APPEAL OF THE REVENUE VIDE ITA N O 224/PN/08 IS PARTLY ALLOWED WHEREAS APPEAL OF THE ASSESSEE VIDE ITA NO 56/ PN/08 IS ALLOWED. 25. WE SHALL NOW TAKE UP ASSESSEES APPEAL VIDE ITA NO 55/ PN/08 PERTAINING TO THE ASSESSMENT YEAR 2002-03. THE GRIEVANCE OF THE ASS ESSEE IN THIS APPEAL IS THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS/CLAIM OF LOSS IN RESPECT OF IRRECO VERABLE LOAN OF RS 5 ` LAKHS TO SHRI TARJI MALI. WE HAVE DEALT WITH THIS ISSUE IN PARA 21 OF OUR ORDER WHEREIN THE ADDITION OF RS 5 LAKHS MADE ON ACCOUNT OF I RRECOVERABLE LOAN OF SHRI 16 TARJI MALI HAS BEEN DELETED. THE SAID DECISION IS APPLI CABLE IN THIS APPEAL ALSO AND ACCORDINGLY THE SAME IS ALLOWED. 26. IN THE RESULT ITA NO 55/PN/08 IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER 2011. SD/- SD/- (I C SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 30 TH SEPTEMBER 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT(A)-II PUNE 4. THE CIT-II PUNE 5. THE D.R A BENCH PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT PUNE BENCHES PUNE