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2020 (12) TMI 861 - AT - Income TaxUnaccounted on-money receipts - Whether CIT(A) granting deduction @50% of unaccounted on-money receipts on adhoc basis - HELD THAT:- Considering the fact that these are unaccounted expenses and all these unaccounted expenses could not be fully substantiated by the assessee with proper supporting documents and also considering the fact that assessee’s declared profit was 19.97% as per its regular books of accounts which is also categorically admitted by the ld. CIT(A) we hold that the assessee would have made profit of 40% approximaterly on these unaccounted transactions by having the benefit in the form of huge cash discounts, huge savings in levy of indirect taxes, better negotiation of prices of materials due to cash purchases etc. Hence, we direct the ld. AO to add 40% of ₹ 9,75,50,000/- (gross receipts) as the unaccounted income which has to be distributed to all the assessment years in accordance with the percentage of work competed by the assessee. Deduction of unaccounted expenses from Unaccounted income - Applicability of provisions of Section 40A(3) - Section 40A(3) of the Act are concerned in respect of unaccounted business expenses incurred in cash, we find admittedly that these are unaccounted transactions and hence, the same would have to be obviously incurred in cash and accordingly, the provisions of Section 40A(3) cannot be brought into operation at all. Admittedly, the seized document contains unaccounted income as well as unaccounted expenditure both were duly transacted only in cash. Hence, the applicability of provisions of Section 40A(3) of the Act to the said payments would not serve the scheme of taxation and would ultimately result only ending up in taxing the entire unaccounted gross receipts alone without giving benefit of deduction to the assessee. This is certainly not the intention of the legislature and more so, the provisions of the Act. Accordingly, the grounds raised by the assessee in this regard for all the assessment years are partly allowed. Addition made on account of capital contribution in the assessee firm by the partner - HELD THAT:- We hold that the benefit should be given to the assessee by holding that the on-money receipts that pertaining to the entire project were received by the assessee in the initial year itself and the said money is certainly available for making capital contribution into the assessee firm, irrespective of the fact that only part of the such on-money receipts has been offered to tax in A.Y.2011-12. What is to be seen is the availability of cash in the hands of the partner to make the capital contribution in the assessee firm which is explained by on-money receipts. Hence, we direct the ld. AO to delete the addition made being the deficit and unexplained capital contribution. Accordingly, the ground No.3 raised by the assessee is allowed.
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