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2015 (11) TMI 287

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..... Claim of the expenses made in cash disallowed - Held that:- In the present facts, we find that the documents found during the course of the search are inchoate. It does not indicate the person to whom the payment has been made, the address of the recipient, the person by whom the payment is made and the documents itself indicates that it is prepared for either seeking of funds or reimbursement of funds. Therefore even if the presumption is to be applied and the documents are accepted as true, it would not lead to the conclusion that payments have been made in cash so as to claim the expenditure. Thus no purpose would be served in remanding the issue to the Tribunal. Further Section 292 of the Act provides that where any documents are found in possession or control of any person in the course of search under Section 132 of the Act, then it may be presumed in any proceedings under this Act that the contents of such documents are true and correct. It will be noted that the section 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 .....

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..... Officer is a plausible view. The same cannot be said to be perverse and/or arbitrary - Decided against assessee. - Income Tax Appeal No. 1398 of 2000 - - - Dated:- 30-10-2015 - M. S. Sanklecha And G. S. Kulkarni, JJ. For the Appellant : Mr. Nitesh Joshi a/w Jineshkumar Gandhi, Advocates i/b Dave Girish Co. For the Respondent : Mr. Suresh Kumar, Advocate JUDGMENT ( Per: M.S. Sanklecha, J. ) This appeal under Section 260A of the Income Tax Act, 1961 (the 'Act') challenges the order dated 6 July 2000 passed by the Income Tax Appellate Tribunal (the 'Tribunal'). The impugned order of the Tribunal disposes the revenue's appeal for the block period 1 April 1986 to 12 September 1996. 2. This appeal was admitted by this Court on 29 July 2002 on the following substantial questions of law: (1) Whether on the facts and in the circumstances of the case, the addition of ₹ 10,00,000/as 'on money' receipt in the period from 1986 to 1989, was without jurisdiction, patently illegal and invalid, there being no evidence or material in support? (2) Whether on the facts and in the circumstances of the case, the third mem .....

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..... Undisclosed Income on sale of scrap ₹ 8,78,085 ₹ 6,01,39,010/ (e) Being aggrieved, the appellant filed an appeal from order dated 30 September 1997 to the Tribunal. The appeal was filed to the extent of the following three additions made by the Assessing Officer: (i) Receipt of 'on money' to the extent of sale of textile machinery for the period 1 April 1986 to 31 March 1989 ₹ 40.39 lakhs; (ii) Disallowed expenditure ₹ 1.82 crores; and (iii) Sale proceeds of scrap ₹ 8.78 lakhs (f) The appellant's appeal was heard by the Regular Bench of the Tribunal consisting of two members viz. Accountant Member and Judicial Member. However there was a difference of opinion between the two members constituting the Regular Bench. This difference was recorded in its order dated 3 August 1977 on the following three issues: (i) 'Onmoney' received for the period 198689 ₹ 40.39 lakhs The Accountant Member sustained the addition only to the extent of ₹ 10 lakhs. The Judicial Member sustained the addition to the extent of ₹ 32.30 lak .....

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..... r in the assessment order dated 30 September 1997 held that 'on money' on account of sale of Stenter machines for the block period 1 April 1986 to 12 September 1996 received by the appellant was ₹ 4.10 crores. The Assessment Order records a finding that for the period 1 April 1989 to 12 September 1996, the 'on money' received was ₹ 3.69 crores and for the period 1 April 1986 to 31 March 1989 onmoney received was ₹ 40.37 lakhs. (b) The appellant does not dispute the Assessment Order dated 30 September 1997 to the extent it holds receipt of 'on money' to the extent of ₹ 3.69 crores for the period 1 April 1989 to 12 September 1996. The appellant on the issue of receipt of 'on money' only disputes that it had received any 'on money' during the period 1 April 1986 to 31 March 1989. (c) Mr. Joshi, the learned Counsel for the appellant submits that the addition of ₹ 10 lakhs by the impugned order as being the 'on money' received by the appellant for the period 1 April 1986 to 31 March 1989 is not sustainable on account of the following: (i) The assessment in this case has been done consequent to search .....

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..... the purposes of the Act. It is submitted that in this case, there is no evidence in the form of any entry in the books of account or any other document to establish receipt of 'on money' by the appellant. Consequently, the amount of ₹ 10 lakhs being added to the appellant's income as being 'on money' received for the period 1986-1989 is unsustainable in law. It is not in dispute that there is documentary evidence of receipt of 'on money' by the appellant for the period 1989-96. Thus there was evidence of receipt of 'on money' only for the part of the block period on sale of Stenter machines for the period 1989-96. This evidence was extrapolated in the impugned order to conclude that 'on money' had been received on the sale of Stenter machines also for the period 1986-89. This extrapolation in case of dealing outside the regular books of accounts was a subject of consideration by the Supreme Court in Commissioner of S.T. Vs. H.M. Esufali AIR 1973(SC) 2266 and it was not disturbed. This interalia on the ground that the task of detecting escaped turnover is not easy and would involve some element of guess work. The above decision o .....

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..... were offered to us in cash. To remain in the other hand in no option but to accept the same. On the other hand in no other area we were dealing in this type of machine that here is no element of cash. Therefore, the sale price in respect of sale of machine to other parties other than Surat is the full and final sale proceeds which need no disturbance. (emphasis supplied) (g) From the above, it is evident that the appellants have themselves admitted that sale in Surat market had to be in cash as the buyers of the Stenter machines would insist on paying the appellant a part consideration in cash. Thus the appellant had no option but to accept the same. This coupled with the fact that in its appeal memo to the Tribunal, the appellant has urged the following ground: The Assessing Officer has erred in estimating that the appellant must have received onmonies to the extent of ₹ 40,37,625/in respect of the period from 1/4/86 to 31/3/89 as against the appellant's contention that the receipts were only to the extent of about ₹ 6 lakhs. It is submitted that the determination by him of the figure on the items in question at ₹ 4,10,22,595/is not warranted .....

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..... se. Thus Question No.1 is answered in negative i.e. in favour of the revenue and against the appellant-assessee. 6. Regarding Question No.3: (a) The claim of the expenses made in cash to the extent of ₹ 1.82 crores was disallowed by the Assessing Officer and upheld by the majority view of Tribunal in the impugned order. During the course of the search, the search party came across the documents which Mr. Joshi, the learned Counsel for the appellant points out could be classified into three different categories as under: (i) Documents indicating an expenditure of ₹ 66.87 lakhs paid as gifts to various people associated with the appellant's business; (ii) Documents indicating an expenditure of ₹ 60.46 being amounts paid as speed money, protection money to union workers and (iii) Documents indicating an expenditure of ₹ 55.04 lakhs paid as overtime to the workers. The expenditure in the aggregate was ₹ 1.82 crores. The Assessing Officer in his order dated 30 September 1997 did not accept that any expenditure was incurred on the ground that complete evidence in support of payment was not provided. It further added the same as .....

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..... nditure. The basis of the above finding is not correct in view of Section 292C of the Act which has been introduced with retrospecive effect from 1 October 1975. In the above view, it is submitted that the appeal be restored to the Tribunal to reconsider this issue on application of Section 292C of the Act. (iii) In any case, the disallowance of the expenditure in terms of Explanation to Section 37(1) of the Act is concerned, it would only be applicable if the purposes of the expenditure was an offence or if it was prohibited by law. The impugned order does not establish that the purposes for which the expenditure was incurred in cash was an offence or it was prohibited by law, but disallows it only on being opposed to public policy. Accordingly, the application of Explanation 1 to Section 37 of the Act to the present facts was unwarranted. (d) As against the above, Mr.Suresh Kumar submits as under: (i) Both the Assessing Officers as well as the impugned order of the Tribunal holds that the appellant assessee has not been able to establish that expenditure was incurred as claimed by them. The documents seized during the course of the search don't contain the name .....

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..... Besides the loose papers do not indicate clearly whether or not the money has been paid. The documents indicated seeking of funds and/or reimbursement of funds. This by itself cannot establish that the money has been actually expended. The Assessment Order also records the fact that the appellant had also not produced the individuals who had made said payments and/or produced their details. If the person alleged to have made payments were produced, the cross examination would have possibly thrown light on the genuineness of such claims. (f) We further note that the aforesaid findings of the Assessing Officer has been reiterated independently by the Accountant Member that no concrete evidence has been produced by the appellants so as to establish that the payments as claimed by them had in fact been made. Notwithstanding the above, the Accountant Member did allow deduction 25% of the total expenditure claimed on the ground that it may have been incurred for business purposes. This after holding that the exact quantification is not possible. (g) On the other hand, we find that the Judicial member on consideration of the facts held that there is no evidence led by the appellant .....

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..... Court in P.D. Abrahim (supra) would have no application to the present facts. (j) The reliance is placed on Section 292C of the Act which was introduced by the Finance Act, 2007 with retrospective effect from 1 October 1975 by the appellant to submit that the documents found during the course of search are presumed to correctly reflect the facts. It is on the basis of the documents found during the course of search that the Assessing Officer had classified them into three different categories indicating the alleged heads of expenditure. This evidence is submitted in view of the retrospective amendment of the Act by Section 292C of the Act be accepted and the onus to establish that the expenditure referred to in documents is not correct is on the revenue. (k) In the present facts, we find that the documents found during the course of the search are inchoate. It does not indicate the person to whom the payment has been made, the address of the recipient, the person by whom the payment is made and the documents itself indicates that it is prepared for either seeking of funds or reimbursement of funds. Therefore even if the presumption is to be applied and the documents are accep .....

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..... ot being made is a possible view. The same is not shown to be perverse on arbitrary. (n) In the above view, Question No.(3) is answered in the negative i.e. in favour of the revenue and against the appellant-assessee. 7. Regarding Question No.4: (a) During the course of the search, various loose papers were seized. Perusal of these loose papers indicate proof of small amounts of money received. In each of these papers there is a detailed description of material, corresponding weight per kg. and the rate applied. Besides at the bottom of each of the loose pages, there is a signature below the words 'received' with date also thereon. Some of the chits which were recovered also indicates truck numbers. The Assessing Officer was of the primafacie view that these indicated sale proceeds of scrap material which have not been accounted in the regular books of accounts. Consequently, the Assessing Officer issued notice to the appellant to show cause why the receipts of amounts indicated in these chits should not be considered as receipt on account of sale of scrap. (b) The appellant-assessee responded to notice pointing out that the loose papers seized in fact reflect p .....

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..... paid on purchase of scrap and seller of scrap would have knowledge of the receipt of the same. This receipt is what is found during the course of the search. Thus, the finding of the Judicial Member and the third member is not only erroneous but also perverse. Thus the same has to be deleted. 9. On the other hand, Mr. Suresh Kumar points out that these findings of fact arrived at by the majority members of the Tribunal confirming the view of the Assessing Officer cannot be interfered with as questions of law. These findings of fact are not perverse as the conduct of the appellant of receiving money outside the books of accounts has been accepted by them for the period 1989-1996. Thus this Court should not interfere with the order of the Tribunal. 10. We are of the view that the conclusion reached by the majority members of the Tribunal that there was in fact sale of scrap is a possible view. This is particularly so as in normal course of human conduct any purchase of raw material even scrap would be shown in regular books of accounts as the same would be entitled to deduction so as to reduce the taxable profit. No person carrying on business would in the usual course of its .....

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