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2022 (6) TMI 514 - AT - Income TaxClaim of Expenditure on hawala business - Allowance of 10% of expenses incurred towards earning commission income received in respect of banking transactions and also in respect of loose papers found during the course of search proceedings - HELD THAT:- Undisputedly assessee is engaged in the carrying on of the hawala business which is proved by the statement of the assessee and corroborated by the incriminating evidences found during the course of search from locker number 464 owned by the assessee. It is also the statement of the assessee. According to the provisions of Section 37 (1) of the act, any expenditure incurred by the assessee wholly and exclusively for the purpose of the business should be granted as deduction to the assessee from the income of business. However the explanation 1 provides that any expenditure incurred by the assessee, which is prohibited by law, is not considered as an expenditure incurred by the assessee wholly and exclusively for the purposes of the business and should not be granted as deduction to the assessee from the income of the business. Apparently, Hawala business carried on by the assessee is opposed to the public policy and is prohibited by the law. Expenditure incurred is in furtherance of hawala business. Assessee also did not submit any proof of incurring any expenditure. Income was also not assessed on net basis @ 0.30 %. No proof of incurring any expenditure is available on record. Therefore, naturally no expenditure is incurred by assessee. Therefore, the action of the learned CIT – A in granting deduction of 10% of the gross income earned by the assessee is not in conformity with the provisions of Section 37 (1) of the act. Therefore, we reverse the order of the learned CIT – A in allowing deduction at the rate of 10% as expenditure incurred. Accordingly, ground number 1 of the appeal of the learned AO Allowed. Addition based on the incriminating material found during the course of search - Admittedly, incriminating material found during search were for AY 2013-14 only. As on the date of the search, assessment year 2010 – 11 is a concluded assessment. Therefore, if any addition is required to be made in concluded assessment it has to be based on incriminating material found during the course of search. Admittedly, the seized material pertains to assessment year 2013-14 and not assessment year 2010 – 11. Therefore, in absence of any incriminating material the learned CIT – A has correctly deleted the addition for assessment year 2010 – 11. Further, for assessment year 2011 – 12, no scrutiny assessment was pending. Therefore, it is also a concluded assessment as on the date of search. As no incriminating evidences are pertaining to this assessment year, the learned CIT – A has correctly deleted the addition. - Decided in favour of assessee.
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