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2016 (3) TMI 20 - ITAT DELHI

2016 (3) TMI 20 - ITAT DELHI - TMI - Additional income as surrendered during the course of search u/s 132(4) - additions made on the basis of statement of Shri Balwant Singh - Held that:- There is no iota of evidence, which suggest that there is unaccounted / undisclosed income emerging out of the incriminating seized during the course of search. Thus, considering the entire factual matrix we find that the AO has not been able to demonstrate or give even an example of any document seized which h .....

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tions are recorded in books of accounts and some parts are unaccounted. Ld. AR has argued that entire seized document was examined during post search and assessment proceeding and no incriminating material was found. Subsequent statements were recorded by the Investigation Wing as mentioned in the assessment order. However no question was asked in furtherance of the statement regarding the contents of the seized document. During original statement also subsequent details of work-inprogress, such .....

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i Balwant Singh alone, cannot be sustained - Decided in favour of assessee - Disallowance of Interest - Held that:- Apex Court in the case of SA Builders Ltd vs. CIT (2006 (12) TMI 82 - SUPREME COURT ) held as agrreing with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2001 (9) TMI 48 - DELHI High Court] that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the as .....

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w point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Respectfully following the ratio of the decision of the Hon’ble Apex Court, we hold that on the facts and circumstances of the case, the interest amount has been incorrectly disallowed - Decided in favour of assessee - Disallo .....

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Smt. Nandita Kanchan, CIT (DR) For the Respondent : Shri Ved Jain, Rajesh Jain, CAs ORDER Per Bench All these four appeals are preferred by the Department. All the appeals pertain to Ramprastha Group of Companies. 2. In I.T.A. No. 3238 the assessee is Ramprastha Builders (Pvt.) Ltd. and it pertains to Assessment Year 2010-11.It has been filed against the order dated 20.02.2013 passed by the Ld. CIT(A)-XXXIII, New Delhi. The main issue in dispute is deletion of the addition of ₹ 12 crores b .....

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ertains to yet another assessee Ramprastha Promoters & Developers Pvt. Ltd. in the Ramprastha group of companies. The impugned order is dated 20.2.2013 and has been passed by the Ld. CIT (A)-XXXIII, New Delhi. In this appeal for Assessment Year 2010-11, the Department is agitating the deletion of ₹ 14 crores based on alleged retraction of statement by the Chairman of the Group. Another dispute in this appeal is regarding the deletion of addition of ₹ 7,31,89,263/- on account of p .....

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on interest free advances given to associated concerns. 6. As the issues involved in all the four appeals are common and related, all the appeals are being disposed of by this common order. 6.1 The facts, in brief, common to all appeals are that search/survey operation was conducted by the department at the business premises of Ramprastha Group companies as well as on the residential premises of the directors of Group Companies. At the time of search Sh. Balwant Singh, Chairman of Ramprastha Gr .....

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tained in Annexures A-2 to A-27 were confronted to him. The relevant questions and answers in his statement recorded u/s 132(4) of the Act on 31.7.2009 are reproduced as under: - "Q1 I am showing you annexure A-2 to A-27 found and seized during the course of search at premises 114, Sector 44, Gurgaon today i.e. 31.7.2009. Please explain the contents of these pages. Ans: These pages and annexure relate to financials of various group companies of Ramprastha group. The pen drive and the hard d .....

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Ramprastha group. On account of nonrecording/ non-reflection of these transactions, I hereby voluntarily admit following additional income for taxation: Sl. No. Name of the concern Asstt.Year Amount (in Rs.) Head 1. Corporate Exim Pvt. Ltd. 2007-08 3,60,87,765 (as per page 1 & 2 of the statement) Disallowance u/s 40A(3)(1) 2. Excellent Advertising & Marketing (P) Ltd. 2007-08 4,71,56,625 (-do-) -do- 3. Ramprastha Builder (P) Ltd. 2007-08 2,00,320 -do-do- 4. Kamla Vallabh Developers (P) .....

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ha Builders Pvt. Ltd. 2010-11 12,00,00,000 Unexplained investment in stock i.e. work in progress 12. Ramprastha Greens Pvt. Ltd. 2010-11 2,00,00,000 Unexplained investment in stock i.e. work in progress 13. Ramprastha Promoters & Developers Pvt. Ltd. 2010-11 14,00,00,000 Unexplained investment in stock i.e. work in progress 14. Ch. Balwant Singh Yadav 2010-11 1,20,00,00 Unaccounted trade advance to Jagbir son of Harsingh, Garauli Kalan, Distt. Gurgaon 15. Ch. Balwant Singh Yadav 2010-11 1,00 .....

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umar Harsaroop, Gurgaon. 20. Other discrepancies to be accounted for in the hands of various persons of the assessee group 2010-11 3,08,00,000 - Total admitted additional income ₹ 52,00,00,000/- only * Q. No. 2 Please state how will you pay tax on this voluntarily admitted additional income of ₹ 52,00,00,000/- in the hands of persons mentioned above by you? Ans.2 The taxes on this admitted additional income of ₹ 52,00,00,000/-admitted by me on behalf of various persons mentione .....

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rastha group on 30.7.2009, you, on behalf of the various companies and individuals surrendered ₹ 52 crore under various heads. Please again explain the same? A1 As I correctly remember, the total surrender amount was around ₹ 52 crores. I am not remembering exactly various heads and mode of surrender for various, group companies and Directors. However, the details are fully available in my statement recorded on the day of search. Q2 How much tax you have paid on the surrendered amoun .....

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. I have given this statement without any fear, threat, pressure or coercion. 6.3 During post search investigations, when the assessees were asked to explain the entries appearing in various seized documents, the AR of the assessee vide his letters dated 30.10.2009, inter alia, submitted as under:- Without prejudice to the above, it is further submitted that there is a total surrender of ₹ 52 crores in various entities in terms of statement of Shri Balwant Singh u/s 132(4) of the Act at th .....

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nts/expenditure/work in progress which is outflow of income and as such, without admitting the contents of the documents referred to us, cannot be read in isolation and can be treated as different undisclosed receipts liable for tax separately due to the simple logic that every undisclosed expenditure, if any, must correspond with undisclosed receipts. Therefore, undisclosed expenditure already offered for tax shall take care of the amount of undisclosed receipts, if any, emanating from the docu .....

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any of the group companies and their directors by the Income-tax department. The surrender of income made by him is contingent to the said condition. The aforesaid condition was also asserted by him before the authorised officer." 6.4 In response, the assessee was informed vide Investigation Wing's letter dated 25.11.2009 as under: "Please refer to the letter of your authorised representative Rajesh Jain & Associates dated 30th October,2009 on the above cited subject. It has b .....

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d/impounded which were confronted to the Directors and other concerned persons of group companies, including the Chairman of the group, Shri Balwant Singh. In the light of this fact it is incorrect to say that the surrender was made without pinpointing any documents." Since in the returns of income filed, all the three assessees did not declare the surrendered amount as per the statement of Shri Balwant Singh, show cause notices were issued to the three assessees and it was pointed out that .....

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he said statement as being voluntary. Another objection was that Shri Balwant Singh had made the surrender on behalf of 10 persons (which were different entities) whereas one person could not make surrender on behalf of the other and fasten the latter with the liability. The three assessees also objected by submitting that these types of statements were usually prepared in all search actions by Investigation Wing to show their output although the CBDT did not appreciate such surrenders. 7.1 In t .....

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support of the surrender, the Assessing Officer mentioned that during the course of search as per AO-4 (Annexure 5, pages 1 to 15) were letter heads of different contractors duly signed which could be used to write out bills to suite the requirements of the assessee. The Assessing Officer also contended that the surrender was made by Shri Balwant Singh after the perusal of the seized documents. 7.2 All the three assessees in their appeals before the first appellate authority challenged the addit .....

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er heads were concerned, the Ld. CIT (A) was of the view that such blank letter heads will in no way prove unaccounted payment to the contractors specially since the various contractors of the Ramprastha group had been surveyed simultaneously and no document of unrecorded receipts were found and no addition was made in the hand of the contractors on this issue whereas the entire construction was done through the contractors. The Ld. CIT (A), accordingly, held that the entire addition was made on .....

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he statement of Shri Balwant Singh, cash payments for acquiring land were debited in the books of account whereas as per records, Ramprastha group of companies had made payments only through cheques to Dharam Raj Construction and Infrastructure (P) Ltd. who in turn has made cash payments to the sellers of land. The Ld. CIT (A), in the result, proceeded to hold that additions based on retracted statement alone and that too based on mistaken facts could not be sustained. Hence, the appeals of the .....

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smissed lightly. The statement made on oath binds the maker of the statement and in the absence of any denial or adequate explanation thereof, admission is almost conclusive regarding the facts contained therein. Although there is nothing specific in the Income tax Act or Indian Evidence Act to make admission as conclusive proof or always binding on the maker, yet it is settled position by way of judicial pronouncements that in the absence of any rebuttal or retraction, the earlier stated facts .....

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mitted, but it does raise an estoppel and shifts the burden of proof on the person making the statement. He submitted that the Hon ble Supreme Court has further held that unless shown or explained to be wrong, a statement is efficacious proof of the facts admitted. On the issue of retraction of statement recorded u/s 132(4), the courts have taken the view that statement u/s 132(4) of the Income Tax Act is a piece of evidence against the assessee. However, the same is not conclusive and if the as .....

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ot permissible. A person retracting from the statement has to establish that the statement was not correct in view of the facts or material/evidence on record or such other facts or material/evidence which came to light at a later stage. Thus a failure on the part of the maker of the statement to prove that the facts earlier stated in the earlier statements were wrong is sufficient to conclude the matter. The Ld. DR submitted that for any retraction to be successful in the eyes of law, the maker .....

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eeper investigation in the matter. The Ld. DR submitted that in the case of Rabindra D. Trivedi vs. CIT 2008 215 CTR 313 (Raj.), the Hon ble Rajasthan High Court upheld the addition of ₹ 3 lacs representing discrepancies in the stock admitted by the assessee in the statement u/s 132 (4) by holding that during the search the assessee had accepted the discrepancies and had made disclosure by way of calculated attempt to sidetrack the attention of the search party and, therefore, sidetrack th .....

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D) Rakesh Mahajan Vs. CIT 214 CTR 218 (P&H) 9. The Ld. DR submitted that the assessees have claimed that the statement of Sh. Balwant Singh u/s 132(4) of the Income tax Act was not voluntary and was recorded under coercion, threat and compulsion. He submitted that this allegation is only an afterthought and an attempt to wriggle out of the situation. It is also contrary to the material on record and is not backed by any documentary evidence. Apart from the statement of Sh. Balwant Singh reco .....

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DR submitted that in para 6 of the Panchnama at the residence of Sh. Balwant Singh, it has clearly been mentioned that no pressure was put on the various persons whose statements were recorded during the search. The Panchnama has duly been signed by Shri Balwant Singh, the authorised officers and two independent witnesses. A perusal of the statement of Sh. Balwant Singh recorded u/s 132(4) on 31.07.2009 shows that he himself has recorded at the end of the statement that the statement has been g .....

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s on the Board of Directors of these companies and, therefore, he was fully competent to make a declaration of additional income in the hands of assessee companies. The Ld. DR also submitted that although there is no concept of on-spot assessment at the time of search but the surrender of additional income was made by Sh. Balwant Singh after proper thought and after he was confronted with the various books of accounts/documents seized during the course of search. Therefore, it cannot be said tha .....

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ssees realized that there is no discrepancy and all the transactions stated in the seized documents were recorded in the books of accounts and hence while filing the returns, income was computed on the basis of books of accounts. The Ld. AR submitted that the AO, during the course of assessment, raised the issue of surrender. Detailed replies dated 5.12.2011 were filed. The AO ignoring the facts and the replies as given by the assessees made the additions on the ground that surrender is valid pi .....

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alwant Singh was shown the seized documents A-2 to A-27. The Ld. AR pointed out that in response thereto Shri Balwant Singh had categorically stated as under: These pages and annexure relate to financials of various group companies of Ramprastha group. The pen drive and the hard disks mentioned as annexure contain details of the business of Ramprastha group. The detailed explanation of these annexures of loose pages/hard disk/pen drive would be submitted by me later, most of the transactions men .....

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hat detailed explanation was yet to be submitted. Further the reply was preliminary reply and not a conclusive reply. The Ld. AR also submitted that if, later on, the assessees after going through the seized documents and books of accounts found that the transactions were reflected in the books of accounts then the assessees were well within their rights to correct the amount. He further submitted that the law is to state the correct income. The law is not that income to be declared in the retur .....

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ed that the AO has referred to letters dated 30.10.2009 whereby it has been categorically stated without prejudice to the above. The use of these words clearly shows that the surrender is without prejudice to the explanation regarding the seized documents. The Ld. AR submitted that it has also been stated that surrender was made without pinpointing any error in the seized document. The Ld. AR further pointed out that thereafter during the course of assessment proceedings a detailed explanation v .....

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sputing these explanations then the AO had to refer to the seized documents. These were not documents which were found and released to the assessee so as to raise a doubt about the authenticity of such documents. These were the documents found and seized and were with the AO and the AO could have easily cross verified these documents with the books of accounts of the assessees to ensure whether the same were reflected and recorded or not in the books of accounts. He further submitted that the AO .....

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ion given by the CBDT vide instruction letter No. 286/2/2003-IT (Inv) dated 10.3.2003 on Confession on additional income during the course of search and seizure and survey operation. Reliance was also placed on Instruction No. F. No. 286/57/2002-IT), dt. 3rd July, 2002. The Ld. AR submitted that in the present cases, the AO has not been able to bring any material or evidence to substantiate the additions. The AO has ignored the fact that an addition can be made only when there is material. In ca .....

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lsory Convertible Debentures (CCD s). The assessee had debited interest to profit/loss account in respect of loans taken and CCDs. However, the Assessing Officer also noticed that the assessee had given interest free loans/advances to group companies. Ld. DR further submitted that the assessee company had failed to discharge the onus to prove that the fund borrowed, on which the interest was paid, was used for the purpose of business. He submitted that the assessee had failed to bring any eviden .....

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1 In response the Ld. AR submitted that as per section 36(1)(iii) of the Act any amount of interest paid in respect of capital borrowed for the purpose of business and profession has to be allowed as deduction in computing income u/s 28 of the Act. He submitted that the AO ignored the explanations given by the assessee and without any justification considered the transactions as not for the business purpose and made the addition in the hands of the assessee. He submitted that the AO did not poin .....

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payment towards purchase of land and disallowed by the Assessing Officer u/s 40A(3) of the Act. Learned Departmental Representative submitted that the meaning of expenditure and constitutional validity of section 40A (3) has been discussed by the Hon'ble Apex Court in the case of Attar Singh Gurmukh Singh vs CIT 191 ITR 667 (SC) where the Hon'ble Apex Court has held that all outgoings including purchase for stock in trade are covered u/s 40A (3) of the Act. He submitted that in view of t .....

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austive and therefore the provision of section 40A (3) shall not be attracted if the parties are identified and there is not material on record to doubt the genuineness of the payment. He submitted that the first proviso of section 40A (3) clearly provides the exceptions (as prescribed by the board in Rules), but the Rules are required to be framed keeping in view the legislative intention as prescribed in the main section and it clearly prescribed that the consideration of business consistency .....

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rwise also, the Honorable Supreme Court in Attar Singh Gurumukh Singh vs ITO 191 ITR 667 has clearly observed that the purpose of section 40A(3) is to disallow bogus cash payment for increasing the expenditure for artificially reducing assessable income only but not to disallow genuine expenditure though incurred in cash due to business exigencies. He further submitted that the latest judgment of various High Court and Tribunals after considering the judgment of Attar Singh Gurumukh Singh vs ITO .....

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the payee is not doubted. Further the assessee would not be able to purchase land if the cash payment would not have been paid and the business of the assessee would have suffered and therefore exception as provided in rule 6DD will come to be invoked. He placed reliance on RC Goel vs. CIT 84 DTR 0432(Del), Sri Laxmi Stayanarayana Oil Mills vs. CIT 367 ITR 0200(AP), Smt. Harshila Chordia vs. ITO 208 CTR 0208 (Raj.), Anupam Tele Services vs. ITO 366 ITR 122 (Guj.), Walford Transport (Eastern Indi .....

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that "...The detailed explanation of these annexure of loose pages/hard disks/pen drive would be submitted by me later. Most of the transactions in these annexure are reflected in the books of accounts of various companies of Ramprastha Group. However, after prima facie going through these documents, I admit that some of the transactions are not reflected and recorded in the books of accounts of various companies of Ramprastha Group. On account of non recorded/non reflection of these transa .....

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to fasten any tax liability. It is a well laid down law that there is no concept of "on the spot assessment at the time of search u/s 132 of the Act. During Post search enquiries Shri Balwant Singh again repeated his surrender statement. The recording of the statement again by the Investigation Wing under the aforesaid circumstances is nothing but technically repeating the same exercise. We also find force in the arguments of the Ld. AR that mere one person not authorized by other persons ( .....

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#39;Kerala-11 vs. A.P. Parukutty Mooppillamma and Others, 149 ITR 131 held that, An assessment is to be made, not solely based on the admission of a person and this view of law which he takes. A proper order of assessment should be made on the basis of all facts and circumstances and on a correct appreciation of the relevant provision of the law. It is trite law that income tax needs to be assessed on income actually earned and not on something which is notional and hypothetical and based on a g .....

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ce. The Assessing Officer has not done any investigation or collected any evidence. On the other hand, CBDT has, in its Circular, directed their officers to base their assessments on the evidence collected during the course of search and. during the course of assessment proceedings. It was specifically directed that no addition should be based solely on confession or disclosures made at the time of search. The Hon ble Gujarat High Court in Kailashben Manharlal Chokshi (supra), has held that a st .....

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r given by the assessee at the time of search, that too, without investigation, subsequent to a retraction. Coming to the variation in statement recorded under section 131 of the Act during the course of assessment proceedings, we do not find any merit in the conclusions drawn by the Assessing Officer which are presumably, based on the purported variations in the replies to questions, especially when the assessee has furnished evidence to show that he had, in fact, purchased and sold shares of M .....

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on the collection of evidence, search and seizure and survey operations, which leads to an information as regards the undisclosed income. The Board viewed that confessions recorded during the course of search and seizure and survey operations did not serve any useful purpose. The Board also insisted that while recording statements during search and seizure and survey operations, no attempt should be mode to obtain confession statement as to the undisclosed income. It was also stated that any act .....

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other) that it is always open to a person who made the admission, to show that the statement to offer income is incorrect and had material to substantiate so, we hold that the Tribunal is not justified in placing undue emphasis on the confession statements made by the assessee. …As rightly pointed out by the learned counsel appearing for the assessee when the assessee had explained the statement made on the second day of the search with materials, that the amounts offered were the loans t .....

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pex Court in the decision reported in (1973) 91 ITR 18 (Pullangode Rubber Produce Co. Ltd. V. State of Kerala and another), we do not think that the Tribunal would be justified in its conclusion that the statement made would clothe the assessment with legality. Quite apart from that, the case of the assessee also stands supported by the Circular dated 10th March, 2003 of the Central Board of Direct Taxes, which has given categorical directions to the officers, who are entrusted with the job of a .....

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t clarifies beyond doubt that the material collected and the statement recorded during the survey is not a conclusive piece of evidence by itself. In any event, it is settled law that though an admission is extremely important piece of evidence, it cannot be said to be conclusive and it is open to the person who has made the admission to show that it is incorrect. Since in the present case, the respondent-assessee has been able to explain the discrepancy in the stock found during the course of s .....

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are two situations i.e. sometimes statement is recorded u/s 133A of the Act at the time of survey. The courts have clearly held that there is no evidentiary value in respect of a statement u/s 133A unless it is supported by some material. Second situation is that the Act has empowered the Revenue to record the statement during the course of search and statement is recorded u/s.132 (4) of the Act. However, merely on the basis of a statement recorded u/s 132(4), no addition can be made until some .....

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ier admission was not the correct position of fact. In the case of S. Khader Khan & Son (supra) the scope of section 133A was in dispute, however, the finding was that solely on the basis of the statement given by one of the partners, it is not lawful to assess an income. The Hon'ble Apex Court had occasion to deal with the issue of admission in the case of Chikkam Koteswara Rao v. Chikkam Subarao AIR (1971) (SC) 1542, wherein the Hon'ble Apex Court has stated that an admission, howe .....

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assessee to demonstrate and satisfy the authority concerned that a particular income was not taxable in his hands and that it was returned under erroneous impression. In the present case before us, the assessee has proved that the disclosure made was neither the undisclosed / unaccounted income of the assessee-company and not even a single piece of incriminating paper or document or evidence of any nature were found from the impounded materials. Even the AO has made addition just on the basis st .....

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wrong and in fact contradictory. Firstly, the letterheads of the different contractors per se did not establish that assessee has done something wrong. The AO has not even referred to any expenditure or deduction debited or claimed in the books of account which is not genuine. Under the law the assessee is supposed to state the correct income. The correct income will mean income which is not less than the income earned and not more than the income actually earned. Thus the assessee has offered t .....

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incriminating nature of document was never confronted either by Investigation Wing or the Assessing Officer to Sh. Balwant Singh. The only seized document discussed by the Assessing Officer is signed blank letter heads of contractors in support of unaccounted work-in-progress. These blank letter heads in no way prove unaccounted payment to the contractors, specially under the circumstances that various contractors of the Ramprastha Group were surveyed simultaneously and no documents of unrecorde .....

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In the substantive part of answer, Sh. Balwant Singh has stated that mostly the transactions are recorded in books of accounts and some parts are unaccounted. Ld. AR has argued that entire seized document was examined during post search and assessment proceeding and no incriminating material was found. Subsequent statements were recorded by the Investigation Wing as mentioned in the assessment order. However no question was asked in furtherance of the statement regarding the contents of the sei .....

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. After considering entire facts and circumstances of the case and judicial pronouncements referred to hereinabove, we are of the considered opinion that the additions based on the statement of Shri Balwant Singh alone, cannot be sustained. Accordingly, the action of the Ld. CIT (A) in deleting the addition of ₹ 12 crores pertaining to ITA No 3238, ₹ 2 crores pertaining to ITA No 3239 and ₹ 14 crores pertaining to ITA No 3240 based on the surrender statement of Shri Balwant Sin .....

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held in the case of SA Builders Ltd vs. CIT (supra), We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [20021254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide h .....

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diency and not from the point of view whether the amount was advanced for earning profits. . Respectfully following the ratio of the decision of the Hon ble Apex Court, we hold that on the facts and circumstances of the case, the interest amount of ₹ 7,31,89,263/- in ITA No. 3240 and ₹ 5,10, 38,764/- in ITA No. 3241 has been incorrectly disallowed and we find no infirmity in the Order of the Ld. CIT(A) on this issue also. Accordingly, the grounds of appeal pertaining to this issue ar .....

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ction shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head profits and gains of business or profession . Subsection (3) of section 40A is an exception to the deductibility of expenditure under the computation provisions of profits and gains of business or profession . Thus consequently what does not fall within the computation of income will not attract the provisions of section 40A (3). On th .....

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nce, we extract the relevant finding of their Lordships from the said judgement:- In our view, a bare reading of the language of this subsection is enough to show, that in the circumstances of the case, provisions of s.40A(3) are not attracted with respect to either of the transactions; obviously because it only prohibits allowing of deduction as expenditure. Expenditure obviously means expenditure admissible to be deducted from out of the income, which may include the expenditure on purchase an .....

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ned Tribunal cannot be said to be wrong. Question No.2 is accordingly answered in favour of the assessee and against the Revenue. 17.2 Similarly, it is seen that the judgement of the Hon ble Punjab & Haryana High Court in the case of CIT vs Alpha Toyo Ltd. (2008) 174 Taxmann 427 (P & H) also fully supports the view taken. For ready-reference, we reproduce paras 6 & 7 of the said judgement:- We have heard learned counsel for the revenue. The Tribunal has found as a fact that the annua .....

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