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TMI Blog2015 (11) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) Whether on the facts and in the circumstances of the case, the third member of the Tribunal erred in holding that he is bound to accept the view of one of the two members inspite of the fact that he has a third view? (3) Whether on the facts and in the circumstances of the case, the Tribunal erred in not allowing any deduction out of the expenditure of Rs. 1,82,38,330/? (4) Whether on the facts and in the circumstances of the case, the conclusion of the Tribunal that the loose papers represented receipt of Rs. 8,78,085/, by the appellant on sale of scrap was perverse, being based merely on presumptions, conjectures and surmises?" 3. Mr. Nitesh Joshi, the learned Counsel for the appellant states that Question No.2 above is not pressed. Thus, Question No.2 is dismissed as not pressed. 4. Brief facts leading to the present appeal for consideration of Question Nos. 1, 3 and 4 are as under: (a) The appellant is a manufacturer of Textile Machinery. On 12 September 1996, there was a search action under Section 132 of the Act on the appellant. Its office premises, factory at Umargaon, Gujarat and residence of two of its Directors were searched by the officers of the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed. The Judicial Member disallowed the entire claim for expenditure of Rs. 1.82 crores. (iii) Income on sale of scrap Rs. 8.78 lakhs The Accountant Member deleted the entire addition of Rs. 8.78 lakhs. The Judicial Member sustained the addition of Rs. 8.78 lakhs. In view of the above difference of opinion, the President of the Tribunal nominated a third member to decide the above points of differences between the members of the Regular Bench. (g) The third member of the Tribunal as nominated by the President, opined by an order dated 10 March 2000 on the difference of opinion as under: (i) 'on money' for the period 1986 to 1989 the addition of only Rs. 10 lakhs is sustained. Thus agreeing with the view of the Accountant Member of the Regular Bench of the Tribunal; (ii) disallowance of alleged expenses, the entire claim of of Rs. 1.82crores was held to be not sustainable. Thus agreeing with the view of Judicial Member of the Regular Bench of the Tribunal; and (iii) sale of scrap, the entire addition of Rs. 8.78 lakhs was sustained. Thus agreeing with the view of Judicial Member of the Regular Bench of the Tribunal. (h) Thereafter, the opinion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 March 1989 is concerned, as no incriminating evidence was found evidencing receipt of any 'on money' either by the appellant or it's agents on the sale of Stenter machines, the addition on account of 'on money' is bad. (ii) Any evidence found of receipt of 'on money' for the period 1989 to 1996 cannot by itself be the basis of the estimating undisclosed income for the period 1986 to 1989 as has been done in this case; and (iii) The impugned order incorrectly proceeds to uphold addition of Rs. 10 lakhs to income of the appellant as 'on money' received for the period 1986 to 1989 on the basis of admission by the appellant to the extent of Rs. 6 to 7 lakhs. (d) As against the above, Mr. Suresh Kumar, the learned Counsel for the Revenue in support of the impugned order submits as under: (i) It has been admitted by the appellant during the assessment proceedings that the amounts paid in cash and claimed as expenditure were paid out of cash receipts. In particular, he invites our attention to Annexure 'A' and 'C' to the Assessment order which indicates that payments had been made in cash during the year 1988-89 admittedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of guess work (see CIT Vs. Dr.M.K.E Memon 248 ITR 310). However the guess work should not be arbitrary. In this case besides the evidence for the period 1989 to 1996, we have noticed that while justifying it's claim for expenditure in cash of Rs. 1.82 crores, the appellant itself has shown expenditure in cash for the period prior to 1989 out of amounts received in cash according to the appellant. (f) Be that as it may, we find that the impugned order has proceeded on the basis that the appellant had himself admitted to receipt of 'on money' to the extent of Rs. 6 to 7 lakhs in its letter dated 25 September 1997. This according to the appellant is an incorrect reading of the communication as in that communication, the appellant had specifically stated that there is no receipt of 'on money' by the appellant during the period 1986 to 1989. The amount of Rs. 6 to 7 lakhs according to the appellant was offered only to reconcile the difference in the value of Stenter machines as reflected by its customers in its books and as reflected by the appellant. Thus no reliance could be placed on the aforesaid communication to reach the conclusion that 'on money' w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following decisions: CIT Vs. Dr. M.K.E. Memon 248 ITR 310 (Bom) CIT Vs. R.M.L. Mehrotra 320 ITR 403 (All) CIT Vs. Faqir Chand Chamanlal 262 ITR 295 (P&H) CIT Vs. Rajendra Prasad Gupta 248 ITR 350 (Raj) CIT Vs. Smt. Usha Tripati 249 ITR 4 (All) CIT Vs. Ghodawat Pan Masala Products Pvt.Ltd. 250 ITR 570 (Bom) The reliance is placed on the above decisions to contend that in the absence of evidence found during the course of the search of receipt of 'on money' for the period 1 April 1986 to 31 March 1989, the revenue cannot tax the same as undisclosed income. The fact that there was evidence of receipt of 'on money' for the period 1989 onwards would not justify the authorities from extrapolating that 'on money' was received by the appellant even for the earlier period. These decisions are of no assistance as the addition on account of 'on money' is based on evidence and the admission of the appellant. (i) We are of the view that the finding reached by officers of the Tribunal is essentially a finding of fact. There was evidence available on record indicating receipt of 'on money' particularly for the period 1989 to 1996. This evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. This after holding that the appellant has not been able to substantiate the same, yet on the ground that the appellant may have incurred some expenditure for business purposes. The rest of the expenditure was disallowed. While the Judicial Member denied the entire deduction on the ground that no evidence had been led to establish that any expenditure had been incurred. In any event, according to him, the same would also be hit by the Explanation below Section 37(1) of the Act. Similarly, the third member concurred with the view of the Judicial Member and also held that the appellant had not established that expenditure had in fact been incurred for the purposes of business. In any view, the third member also held that the same would be hit by the Explanation to Section 37(1) of the Act. (c) Mr. Joshi, the learned Counsel for the revenue challenges the addition of Rs. 1.82 crores on being disallowed as expenditure on the following grounds: (i) No undisclosed assets of the value of Rs. 1.82 crores have been found with the appellant. Therefore the natural presumption would be that this amount has been spent for the purposes as reflected in the seized documents. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a finding of fact. This finding of fact has not been challenged on the ground that it is perverse. Consequently, the impugned order of the Tribunal cannot be found fault with. (iii) The occasion to examine the application of the Explanation 1 to Section 37 of the Act would not arise in the present facts. This for the reason that it would arise for examination only after the appellant-assessee has been able to satisfy the basic requisites of Section 37 of the Act viz. that expenditure as claimed has been incurred and also that the expenditure has been incurred for the purposes of business. It is only thereafter that the occasion to examine the explanation to Section 37(1) of the Act would arise. It is therefore submitted that in the facts of this case the examination of Explanation to Section 37(1) of the Act is not warranted. (iv) The retrospective amendment to Section 292C of the Act would not come to the aid of the appellant as the same only gives discretion to the revenue authorities, to presume that the documents found during the course of the search are true. Besides, the presumption in Section 292C of the Act is a discretionary presumption. Therefore it is to be invok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of allowablity of the expenditure as deduction was referred to has held that the appellants had not furnished any evidence what so ever to prove the expenditure was incurred and that it was incurred for the purposes of business. (h) Therefore we notice that the impugned order of the Tribunal has come to a conclusion that there is no evidence produced to prove that the expenditure claimed as deduction was in fact incurred by the appellant-assessee. Albiet the Accountant Member (minority view) after holding that the appellant has not been able to substantiate the expenditure does allow deduction to the extent of 25% of Rs. 1.82 crores. Therefore, the primary requirement of satisfaction of Section 37(1) of the Act has not been met by the appellant-assessee. This finding of the authorities under the Act as well as the Tribunal are undisputedly findings of fact. On the basis of available evidence before the authorities and the Tribunal, the findings arrived at cannot be said to be perverse and/or arbitrary. In fact there is no challenge to the aforesaid finding on the ground that it is perverse. It is a plausible view on the basis of the evidence available. (i) The appellants con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion uses the word 'may presume' and not 'shall presume' or 'conclusively presume'. The words 'may presume' are in the nature of discretionary presumption different from a compulsory presumption. Therefore this presumption has to be invoked by the authorities passing an order under the Act particularly when the invocation of such presumption is discretionary on the authorities. During the course of the assessment proceedings, the appellant-assessee sought to explain the fact that these expenses on which the deduction is claimed had in fact been incurred. This was in response to the show cause notice issued to the appellant. Thereafter Explanation offered by the appellant was not found satisfactory on the basis of the evidence available before the authorities and the Tribunal. In this view of the matter, the amendment to Section 292C of the Act even though with retrospective effect would not bring about any material change in the conclusion arrived at upon the existing facts. (l) The appellants placed great emphasis on the nonapplicability of the Explanation to Section 37(1) of the Act. It was contended that the payment made in this case was neither a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed/manufactured, but in the course of manufacturing of finished product, scrap is generated. Thus on facts the Assessing Officer concluded that the amounts indicated in the loose papers aggregating to Rs. 8.78 lakhs was nothing but sale proceeds of the scrap material and therefore added to the income of the appellants as income from undisclosed sources. In appeal, the members of the Regular Bench did not agree amongst themselves. The Accountant Member deleted the addition of Rs. 8.78 lakhs on the ground that the very fact that the documents in the possession of the appellant would indicate that the amounts have been received by the supplier/seller of scrap purchased by the appellant. This is the only acceptable explanation for the appellant being in possession of the signed document. The Judicial Member on the other hand on preponderance of probability came to the conclusion that in the normal course of human conduct, purchase of scrap if utilized in manufacturing activity would have been recorded in the normal books of accounts as deduction would be available. In these circumstances, he was of the view that purchase of scrap is ruled out and it has to be considered as sale of scra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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