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2016 (1) TMI 455 - ITAT HYDERABAD

2016 (1) TMI 455 - ITAT HYDERABAD - TMI - Disallowance of expenditure recorded in the seized material - Applicability of provisions of sections 40A(3) and 40(a)(ia) invoked - Held that:- The undisputed facts are that the assessee has accepted that books found and seized during the course of search pertain to the assessee and that the receipts and payments mentioned therein are also relating to the business operations of the assessee. Whatever may be the reason for accepting the receipts mentione .....

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ture being incurred in cash and some of which may be for illegal purposes is also not allowable under sections 40A(3) and 40(a)(ia) of the I.T. Act. Therefore, the contention of the Ld. Counsel for the assessee that the entire payments mentioned in the seized material is to be allowed while treating the receipts as income of the assessee is not tenable. However, we also agree with the Ld. Counsel for the assessee that the entire receipts recorded in the registers can not be treated as the income .....

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before us, we are of the opinion that the issue needs re-look/reconsideration by the A.O. for estimation of the assessee’s income.

Since payments mentioned in the seized material are not being considered as the expenditure of the assessee, the applicability or otherwise of the provisions of sections 40A(3) and 40(a)(ia) of the I.T. Act is also not relevant at this stage. - Decided in favour of assessee for statistical purposes. - 1141/H/2015, 1142/H/2015, 1143/H/2015, 1144/H/2015 - Da .....

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also in sustaining the addition on another ground i.e., that sections 40(a)(ia) and 40A(3) also might be applicable to the assessee. 2. Brief facts of the case are that there was a search and seizure operation conducted in the business premises of the assessee on 20.08.2009. During the course of search, certain incriminating material/ documents were found and seized. From the residence of Mr. B. Seenaiah, Managing Director of the company, five small note books were seized vide Annexure A/BSR/02 .....

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n and other expenditure in the nature of business of the assessee and that the entries in these books are in code form and that the amounts should be read as rupees in thousands. During the assessment proceedings, efforts were made to co-relate entries in the books with the entries in the regular books of the assessee and it was found that none of these entries are entered in the regular books of the assessee. It was observed that the opening balances, receipts and payments mentioned in these bo .....

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24,74,91,898 2.1. In view of the same, the A.O. asked the assessee to explain as to why payments cannot be ignored as they are not allowable expenditure and as to why all the receipts cannot be taxed in the respective years as suppressed receipts of the company. Mr. B. Krishnaiah, Chairman of the Company M/s. BSCPL Infrastructure Ltd and one of the Directors in assessee-company, submitted his objections on 19.12.2011 according to which, Mr. B. Seenaiah is one of the promoters of M/s. Bollineni C .....

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e responsible persons and on sensing the fact that Mr. B. Seenaiah was looking into the irregularities perpetrated by them, such staff left the organization without any notice. It was submitted that the five books containing data about BSCPL were brought by Mr. Seenaiah to Hyderabad which was since seized by the department during the search proceedings at the residence of Mr. Seenaiah and therefore, Mr. Seenaiah was not able to explain the details recorded in such books and also for what purpose .....

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clared an additional income of ₹ 1 crore during the course of investigation proceedings though there was no proper record or basis for any of the items which was recorded in these books. Therefore, it was prayed that the books cannot be considered for any addition at all. The A.O. however, was not convinced with the said contention and held that the receipts generated to meet the expenditure recorded in the books is taxable under the Act but the payments mentioned in the books are not allo .....

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ould certainly not have come to the notice of the department. She held that by keeping this part of the business out of the regular books of account, the assessee should not be allowed to be in a relatively advantageous position compared to that of the assessee who did his business fairly and honestly. She further held that the transactions in the seized books should be figuratively be brought into the regular books of account and be considered as part of the same for the purpose of assessment. .....

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e as it would be against the public policy that payment be allowed as expenditure in the hands of the payer and the corresponding receipt in the hands of the payee should not be considered as income. She further observed that even if the expenditure is to be allowed as deduction, the amounts claimed by the assessee are hit by the provisions of section 40A(3) of the Act since all the payments were in cash and exceeded ₹ 20,000 in each instance. She also held that since the payments are ille .....

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the undisclosed income of the business of the assessee. He submitted that in the same breath, the Revenue ought to have allowed the claim of expenditure as recorded in the seized material. He submitted that the Ld. CIT(A) has erroneously held that the expenditure is not allowable even under sections 40A(3) and 40(a)(ia) of the I.T. Act. As regards the issue as to whether any addition under section 40A(3) can at all be made in the case of seized material, he placed reliance upon the decisions of .....

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whether the entries related to receipts or payments, she submitted that payments claimed to be made by the assessee is not allowable. She submitted that by allowing the expenditure claimed by the assessee as recorded in these registers, which are in fact incoherent and not verifiable, the Revenue would be at loss. In support of her contention that the expenditure claimed to have been made in cash in excess of ₹ 20,000 is disallowable under section 40A(3) of the Act after 25.07.1995, the L .....

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receipts and payments mentioned therein are also relating to the business operations of the assessee. Whatever may be the reason for accepting the receipts mentioned in the books, the lone contention of the assessee before us is that the expenditure relating to the receipts should be allowed. We agree with the contention of the Ld. D.R. that the expenditure which has been incurred wholly and exclusively for the purpose of business alone can be allowed and it is not verifiable from the seized mat .....

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