TMI Blog2012 (9) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... as suspicion cannot replace proof, thus in the absence of any materials, in the form of documents, the revenue could not have denied the benefit of any expenses which would otherwise have inured to the assessee, as an allowable deduction under Section 37 (1) - So far as the heads of expenses are concerned, the revenue was unable to show how any of them were prohibited by law, or amounted to offences - in favour of assessee. - ITA 1620 & 1622/2010 - - - Dated:- 31-8-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Puneet Gupta, Jr. Standing Counsel. For Respondent: Mr. Piyush Kaushik, Advocate. MR. JUSTICE S.RAVINDRA BHAT The Revenue in the present appeals directed against the common order of the ITAT in ITA Nos.229/Del/2004 and 321/Del/2004 concerning the block period 01.04.1998 to 20.08.1998, claims to be aggrieved by its order dated 11.09.2009. The following questions of law arise for consideration, i.e., (i) correctness of the impugned order directing the addition of Rs. 3,68,31,145/- to be withdrawn, by virtue of the impugned order; (ii) correctness of the ITATR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts had to be deducted. The reasoning of the CIT (A) can be gathered from the following extracts of the order in appeal: - XXX XXX XXX It has been further mentioned in the assessment order that though the fact that expenditure was made cannot be denied as it appeared in the seized documents, however, it seems that the said expenditure was incurred abroad in an illegal manner and the same could not be allowed. According to the Assessing Officer the theory of purchase and transportation of green boxes appeared to be an afterthought. In view of the above, it was held that the said expenditure being illegal in nature, as already decided by various legal authorities, cannot be allowed. The Assessing Officer in his order has not specified as to on what basis he has treated these expenses as illegal. The conclusion of the Assessing Officer that the business prudence would not allow such heavy expenditure against meager receipts does not seem to be correct, as against the receipt of Rs.3 crores approximately, an amount of only Rs.2.40 crores approximately was spent leaving a balance of merely Rs.60 lacs with the appellant. According to me such an income during a period of less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivery carried on did not belong to Naveen Gera but was that of the assessee. It was also held that income or loss from a composite activity includes air transport and door to door delivery business. The relevant findings of the Tribunal with regard to the disallowance and the partial relief granted by the CIT (A) are found in the following extracts of its impugned order: - 36. We have heard the rival submission of both the parties and have gone through the material available on record. We are of the considered opinion that admittedly, the assessee has received Rs.3 crores approximately on account of fright charges for door delivery business and except green boxes expenses, no direct expenses is claimed by the assessee. It has to be accepted that for earning this income, the assessee must have incurred expenditure on account of delivery of goods from Airport to the door of the consignee. While determining the quantum of the expenses, we have to keep in mind that the assessee is not having any office in Russia and delivering the consignment at the door of the consignee, personal work is involved and hence expenses of sizeable amount will be there. Out of green boxes expenses, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses on account of Rishwat i.e. bribe, it cannot be held on the basis of suspicion only that the expenses are not remuneration expenses but Rishwat expenses. Nothing has been pointed out by the Assessing Officer as to for what illegal activity, the assessee might have paid Rishwat i.e. bribe. In the absence of any material to show or to indicate that R expenses may be on account of Rishwat, we feel that the same should be allowed as remuneration expenses. 38. Regarding part disallowance out of commission payment, we find that the Assessing Office has made disallowance on ad hoc basis by saying that commission payment to the extent of 10% of receipts is allowable. The same has been deleted by Ld. CIT (A) on the basis that there is no evidence available in the seized record to indicate that only 10% of freight charges was a reasonable amount for payment as commission and hence the Assessing Officer was not justified in restricting the commission payment on ad hoc basis. We find no infirmity in the order of Ld. CIT (A) on this issue and hence we confirm the same. In this manner, we find that all the three disallowance made by the Assessing Officer in both the years are not sustainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section-132 (4A) that the receipts constituted income and brought this amount to tax, the Revenue cannot draw a reverse presumption against the assessee and ask it to prove that why certain entries ought to be disallowed as inadmissible heads. In other words, if the Revenue falls back on presumption under Section 132 (4A), the nature of the presumption has to be the same with regard to the material in respect of which it is drawn. Learned counsel relied upon the judgment of this Court reported as CIT v. Naresh Kumar Aggarwalla, 331 ITR 510; and that of the Bombay High Court in Surender M. Khandar v. ACIT, 321 ITR 254. 8. Learned counsel also relied upon the decision of this Court reported as CIT v. Ravi Kant Jain, 250 ITR 141 for the submission that the scope of the block assessment is confined to the material found during the search. Reliance was lastly placed upon the decision of the Calcutta High Court in CIT v. Ashim Krishna Mondal, 270 ITR 160. It was urged in addition that in view of concurrent findings of fact pertaining to expenses incurred by the assessee, the scope of proceedings by virtue of Section-260A, no question of law can be said to arise. 9. The above dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision, and allows expenditure as deductible while computing the income on the subject to fulfilment of these conditions: a) the expenditure should not be deductible under Sections 30 to 36 of the Act; b) The expenditure must have been incurred wholly and exclusively for the purposes of the assessee‟s business; c) It should not not be personal in nature; and d) It should not must not be capital in nature." 13. The Explanation to Section 37 (1) of the Act was inserted by Finance (No.2) Act, 1988 with retrospective effect from 01.04.1962, i.e., inception of the Act. This appears to have been a public policy driven amendment, disallowing deduction benefits in respect of illegal activities which could potentially be brought to tax. The phraseology of the provision clarifies that if the (business or commercial) activity is an offence or which is prohibited by law deduction, which might otherwise be eligible to the benefit of Section 37 (1) would not be granted. 14. In the present case, the AO and, to a certain extent, the CIT (A) appear to have proceeded inter alia, to disallow heads of expenditure towards commission payments, sundry expenses (termed R‟) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective of any other factors which may dissuade the court from doing so. 16. In P.R. Metrani v. Commissioner of Income Tax, Bangalore (2007) 1 SCC 789 the Supreme Court elaborated upon the nature of presumption under Section 132 (4A) and the scheme of the provision, in the following words: Sub-section (4A) was inserted by Taxation Law (Amendment) Act, 1975 with effect from 1.10.1075 to permit a presumption to be raised in the circumstances mentioned therein. Before the insertion of sub-section (4A) the onus of proving that the books of account, other documents, money bullion, jewellery etc. found in possession or control of a person in the course of a search belonged to that person was on the Income Tax Department. Sub-section (4A) enables an assessing authority to raise a rebuttable presumption that such books of account, money, bullion etc. belonged to such person; that the contents of such books of account and other documents are true, and, that the signatures and every other part of such books of account and other documents are signed by such person or are in the handwriting of that particular person. Raising of such presumption has been enacted by the Legislature to enabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the High Court in the impugned judgment that the presumption under sub-section (4A) is a irrebuttable presumption in so far as it relates to the passing of an order under sub-section (5) of Section 132 and rebuttable presumption for the purpose of framing a regular assessment is not correct. There is nothing either in Section 132 or any other provisions of the Act which could warrant such an inference or finding. Presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in Section 132 or any other provision of the Act to indicate that the presumption provided under Section 132 which is a self contained code for search and seizure and retention of books etc. can be raised for the purposes of framing of the regular assessment as well. If the revenue was of the opinion that the expenses claimed towards green boxes was inadmissible or was excessive, or not genuine, in order to reject the entries in the books of account and other documents of the assessee, seized during the search, it ought to have relied on other materials. Having once drawn the presumption that the contents of the documents (of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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