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2016 (1) TMI 455 - AT - Income TaxDisallowance of expenditure recorded in the seized material - Applicability of provisions of sections 40A(3) and 40(a)(ia) invoked - Held that:- The undisputed facts are that the assessee has accepted that books found and seized during the course of search pertain to the assessee and that the receipts and payments mentioned therein are also relating to the business operations of the assessee. Whatever may be the reason for accepting the receipts mentioned in the books, the lone contention of the assessee before us is that the expenditure relating to the receipts should be allowed. We agree with the contention of the Ld. D.R. that the expenditure which has been incurred wholly and exclusively for the purpose of business alone can be allowed and it is not verifiable from the seized material that this expenditure is incurred wholly and exclusively for the purpose of business of the assessee. We also agree with the Ld. D.R. that most of the expenditure being incurred in cash and some of which may be for illegal purposes is also not allowable under sections 40A(3) and 40(a)(ia) of the I.T. Act. Therefore, the contention of the Ld. Counsel for the assessee that the entire payments mentioned in the seized material is to be allowed while treating the receipts as income of the assessee is not tenable. However, we also agree with the Ld. Counsel for the assessee that the entire receipts recorded in the registers can not be treated as the income of the assessee. The relatable business expenditure has to be allowed from the receipts to compute the undisclosed income of the assessee. Therefore, the only course open to the Revenue would be to reject the books of account maintained by the assessee and to estimate the business income of the assessee. As the facts relating to the computation of gross profit or net profit of the assessee for the earlier or subsequent assessment years or relating to other assessees in similar business are not before us, we are of the opinion that the issue needs re-look/reconsideration by the A.O. for estimation of the assessee’s income. Since payments mentioned in the seized material are not being considered as the expenditure of the assessee, the applicability or otherwise of the provisions of sections 40A(3) and 40(a)(ia) of the I.T. Act is also not relevant at this stage. - Decided in favour of assessee for statistical purposes.
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