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2016 (5) TMI 170 - ITAT MUMBAI

2016 (5) TMI 170 - ITAT MUMBAI - TMI - Disallowance u/s.14A - Held that:- No infirmity in the order of CIT(A) for excluding the strategic investment made in the joint venture business projects while computing disallowance under rule 8D(ii).- Decided in favour of assessee

Disallowance u/s.37(2B) - donation to Bharatiya Janata Party - Held that:- The assessee has not given any advertisement in souvenir of the political party therefore not hit by the provisions of section 37(2B). Since t .....

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tal. This fact is verifiable from the enclosed balance sheet of the assessee. The finding of fact recorded by CIT(A) are as per material on record, therefore, does not require any interference on our part. Accordingly, we confirm the action of the CIT(A) following the decision of jurisdictional High Court in the case of Reliance Utilities Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] - Decided in favour of assessee

Adhoc disallowance on telephone expenses, vehicle expenses etc. - Held th .....

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payee cheque. We also found that when the work was being executed the site has been visited by the engineers of BMC to check the progress and validity of the work. The MCGM is also having its own inhouse vigilance department to check the quantity and quality of the work done. Only after satisfying with the quantity and quality of work done, the payment was made by the assessee, therefore, it cannot be said that assessee has not purchased the goods, because without purchase, it was not possible .....

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T(A) has dealt with great detail of the statement dated 2-5-2012 as recorded by the AO and reply filed by the concerned parties. After recording detailed finding the CIT(A) has applied the proposition of law laid down by various High Courts and came to the conclusion that assessee’s actual purchase of material by the assessee and disallowing the same was not justified. The detailed finding recorded by CIT(A) are as per material on record, which has not been controverted by ld. DR by bringing any .....

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e order of CIT(A)-Mumbai, dated 22-10-2012, for the assessment year 2009-10, in the matter of order passed u/s.143(3) of the I.T.Act. 2. Rival contentions have been heard and record perused. Facts in brief are that assessee is a Government contractor. During the course of scrutiny assessment, various disallowance/additions were made by the AO. Assessee filed appeal before the CIT(A). In respect of relief given by the CIT(A), the revenue is in further appeal before us. 3. 1st grievance of the rev .....

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ssions. The appellant objected to the average investment arrived at by the Assessing Officer as per the formula provided in Rule 8D(ii). The Assessing Officer adopted the value of investment as ₹ 1,19,57,766/- as on 31.3.2009. It is the submission of the appellant that ₹ 59,43,220/- was the actual investment in shares and the balance was the investment into the joint venture business projects which is not the assets of the appellant and should not be taken into consideration. As per .....

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y clear that the Assessing Officer had to take into account the average value of investment which yields only the exempted income. Hence while considering the average value of investment, the Assessing Officer has to consider the actual investments made by the appellant which generates the exempted income. Hence to this extent, the Assessing Officer has erred in taking the entire investments in computing the disallowance under Rule 8D(ii). In view of this, the Assessing Officer is directed to ad .....

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Ltd., ITA Nos.5408, 4957/Mum/2012, 65 SOT 86 and M/s JM Financial Limited, ITA No.4521/Mum/2012, order dated 26-3-2014. 7. Respectfully following the above order, we do not find any infirmity in the order of CIT(A) for excluding the strategic investment made in the joint venture business projects while computing disallowance under rule 8D(ii). 8. The revenue is also aggrieved for deleting disallowance of ₹ 4,18,000/- u/s.37(2B) of the I.T.Act. The AO had discussed this issue in para 7 of .....

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7(2B). In view of this, the addition made by the Assessing Officer is hereby deleted. This ground of appeal is allowed 10. We have considered rival contentions and found that the assessee has not given any advertisement in souvenir of the political party therefore not hit by the provisions of section 37(28). Since the expenditure was incurred wholly and exclusively for the purpose of business and was not in personal nature, there was no justification for disallowing the same. Accordingly, we con .....

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owed at 12% per annum and accordingly ₹ 4,61,376/- was disallowed. 12. By the impugned order the CIT(A) deleted disallowance of interest after observing as under :- 6.3. I have carefully considered the above submissions. The opening capital as per the balance sheet as on 31 3.2008 was ₹ 8.4 cr and the closing balance ₹ 5.37 crores. which shows that the appellant had got huge surplus funds available in the form of capital. Hence the contention of the appellant that the loans are .....

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owed capital used for purposes of business-Interest deductible-Income-tax Act, 1961, s. 36(1 )(iii). The assessee claimed deduction of interest on borrowed capital. The Assessing Officer recorded a finding that the sum of ₹ 213 crores was invested out of its own funds and ₹ 147 crores was investment out Of borrowed funds. Accordingly he disallowed interest amounting to ₹ 4.40 crores calculated at 12 per cent. per annum for three months from January, 2000 to March, 2000. The Com .....

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arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible." In view of the above discussion, the disallowance of interest ₹ 4,61 ,376/- is hereby deleted. This ground of appeal is allowed. 13. We have considered riva .....

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he CIT(A) following the decision of jurisdictional High Court in the case of Reliance Utilities Ltd., 313 ITR 34. 14. The revenue is also aggrieved for deleting adhoc disallowance of ₹ 1,00,000/- on telephone expenses, vehicle expenses etc. The AO was of the view that the element of personal in nature in respect of the above expenditure cannot be ruled out and hence made an adhoc disallowance of ₹ 1,00,000/-. 15. By the impugned order, CIT(A) deleted the same after observing as under .....

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by deleted. 16. We have considered rival contentions and found that personal element in such expenses cannot be ruled out. Therefore, keeping in view the totality of facts and circumstances of the case, we restrict the disallowance to the extent of 10% of such expenses. This ground of the revenue is allowed in part. 17. The last grievance of the revenue relates to deleting addition of ₹ 3,50,19,655/- on account of alleged non-genuine purchases of the assessee. From the record we found that .....

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sing Officer issued notices u/s.133(6) of the Income tax Act only to M/s. Deep Enterprises and M/s Forum Traders. No reply was received from M/s.Forum Traders and the notice issued to M/s. Deep Enterprises returned unserved. Since the appellant was not able to produce the parties, the Assessing Officer had added the entire purchases made from the above 12 parties as non genuine one. 18. By the impugned order, the CIT(A) deleted the addition after observing as under :- 8.3. I have carefully consi .....

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ous repair work etc.. The Authorized Representative of the appellant was asked to produce one sample tender documents and the same was filed in respect of Storm Water Drain Works , Chembur S.W.D. Work. and the appellant had commenced the work on 15.4.2009. The entire contracts spread over 2009-10 to 2011-12. The appellant received 55% of the contract receipts during the assessment year. 8.3.1. The appellant was also directed to furnish the scope of work in respect of the entire 14 contracts. One .....

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all the contracts are almost identical which involves construction of the drain and slab to cover the top along with raising and construction of road from the starting point to end. This scope also gives the construction programme. The appellant was given the time to complete the work within 12 months. Hence to carry out the above civil construction work the appellant had to necessarily purchase the building materials such as cement, steel etc. without which it is not possible to complete he co .....

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parties. 8.3.3. The Sales Tax Department had only put up a list of suspicious dealers which does not mean that the supply of materials by the parties are bogus. The Assessing Officer had not brought any material on record to show that no material has been supplied by the above 12 parties. The mere non production of the parties should not lead to the conclusion that the purchase are not genuine when there are supporting evidences in the form of invoices, account payee cheques etc. 8.3.4. When th .....

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terms of the contract, the contractor has to erect a site laboratory for testing materials on site for which a quality control Engineer has to be appointed. The contractor has also to send samples of all the materials received on site to Municipal Testing Laboratory under the Sub Engineer's signature. The testing charge are paid by the contractor. As mentioned already, the appellant had filed one full set of tender documents in respect of Storn Water Drain works carried out at Chedda Nagar. .....

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rder would result in levy of penalty of ₹ 500/- per day. Similarly a penalty of ₹ 500/- per day will be imposed if Quality Control Engineers is not found appointed/deployed on the work. Section 6 talks about technical specifications. Clause 6.2.2 & 6.2.3. deals with the material used in the contract and samples and test of materials. As per sub clause 6 of 6.2.3, the Contract shall not use any material without prior testing and clearance by Engineer in charge. In cases where the .....

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d and verified by the Assistant Engineer before the same got forwarded to the Executive Engineer. After final checking by the Executive Engineer, the bills are furnished to the Accounts Department. Thus depends upon the stage of contract, running bills are raised and after duly certified by the MCGM Authorities, payments are sanctioned to the appellant. 8.3.7. The contract work carried out is subjected to checking by the Vigilance Department of MCGM for the quality and quantity of the work carri .....

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ach stage of the contract. For each work the payment certificate has got a unique ID and for this particular work, the payment Certificate ID is 1000146827. For example, Sr.No.8 of the Payment Certificate, art payment made is as under:- 1 Description Leaving shoring in trenches new or old including dog spikes 2 Activity No. FMSWD 45 3 Rate 264.00 4 Curr. INR 5 Unit SQM 6 Est. Qty. 3,320.000 7 Est. Amount 876,480.00 8 Executed Qty 1,160.00 9 Upto last bill Qty 0.000 10 Upto last Bill Amount 0.00 .....

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ppellant had also filed the evidence in respect of testing the materials used in the contract. Few such copies issued by Material Testing Laboratory, MCGM are available in the submissions made. The perusal in reference NO.AESM/BRK/2009-09-31 and AESM/BRKl2009-09-32 both dated 24.2.2008 indicates that the quality of the brick used by the appellant had been tested by the Asstt.Engineer(Soil Mech.) of MCGM. Similarly certificate issued by the MCGM for testing the cement by Material Testing Laborato .....

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yments were received against the executed contracts. The Assessing Officer without examining the facts discussed above had come to the conclusion based only on the presumption that because the names of e suppliers were put in the internet as "suspicious dealers", the purchases were bogus without purchase of material such as cement, steel, brick etc, the appellant could not have completed the contract assigned to it. The Assessing Officer had no material on record to show that how the c .....

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ve suppliers were made by way of account payee cheques. 8.3.10. Once the work is completed measurements are taken into measurement book and payments are made according to the work completed. The contention of the, Assessing Officer that if the entire materials purchased is bogus. then how the appellant is able to complete the work and receive the payment from BMC. 8.3.11 The AO vide his letter dated 10.10.2012 filed a submission mentioning that there was a survey u/s.133A carried out in this cas .....

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The copies of the statement recorded were handed over to the AR of the appellant and he was directed to file the submissions. The submissions made by the A R. of the appellant on 19.10.2012 is reproduced as under:- "In continuation to submission already made and as asked for about the confession/surrender made during the course of survey action u/s. 133A We have been provided the copy of statement record on 04/01/2012 and 02/05/2012 by your honour. In this respect we have been instructed to .....

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ntracts. I agree that I am not in a position to give the supporting documents to some of these bills such as the delivery challans, lorry receipts, octroi receipts etc to you right now in all the cases. I will be in a position to get them from the sites and submit to you in due course." A perusal of the above Answer it is crystal clear that the assessee actually purchased the material and all these purchases are bonafide purchases. He further stated that he is not in position to give some o .....

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essee has merely stated that there may be some inflation but not with 100% certainty. Hence the disclosure made without any corroborative evidence being found during the survey action cannot be made basis for addition. 2. Statement dated 02/05/2012 a) In reply to question no 7 the appellant herein stated that the records are being maintained by them which gives details of the material likely to be used and actual usage. b) In reply to question no 8 the appellant herein submitted all the necessar .....

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g these genuine purchases as non-genuine does not arise. Here it is pertinent to mention that we have provided the details pertaining to FY 2008-09, FY 2009-10, FY 2010-11 and FY 2011-12. c) In reply to question no 10 the appellant submitted as under which is reproduced as under: "As far as I am concerned we have actually purchased material and all these purchases are bonafide purchases used for execution of our contracts. I agree that I am not in a position to give the supporting documents .....

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l record and payment has been given by assessee there does not remain an iota of doubt about purchase and utilization thereof. d) In reply to question no 11 the assessee has re-iterated that we have actually purchased the material and all these purchases are bonafide. He further stated that he is not in position to give supporting of some of the bills and not all the bills right now. However we gave all the details vide replying to question no 8. Therefore the question of treating genuine purcha .....

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he course of survey action to prove that appellants purchases for the impugned AY i.e. AY 2009-10 are bogus. iii) Thirdly the statement given pursuant to survey action on 04/01/2012 and 02/05/2012 have no relevance with the affairs of the AY 2009-10. iv) Fourthly the statement recorded u/s. 133A is not a sworn statement as the officer is not empowered to examine any person on oath u/s. 133A. Hence statement recorded u/s. 133A has no evidentiary value and any admission made during such statement .....

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LA Pandya in ITA No.4417 to 4420/M/97 where in it has been held that the basis for making assessment should be solely on the basis of the corroborative material found at the time of survey and not on the basis of the statement recorded u/s.131. Considering the above cited decision your honour will appreciate and admit that this cannot be the basis for treating genuine purchases as bogus. Moreover in the statement disclosure is given for AY 2010-11 onwards and not for the impugned assessment yea .....

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nd it was conveyed that the addition in this case was correctly made. The above survey report indicates that Shri Kishore G Shah who manages the affairs of M/s.Chirag Infra Project P.Ltd. had admitted that there is some element of Inflation of bills by site in charge pertaining to the purchase of materials particularly sand, tiles and other materials, (answer to question No.19). The ADIT had questioned Mr.Kishore G Shah specifically about the purchase of materials from the concerns operated by o .....

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from Shri Arvind Jainjn para 6 and the suggestions given to the AO by the ADIT is available in para 8 which is reproduced as under, for the sake of convenience:- "Suggestions to Assessing Officer This report is only indicative and not exhaustive or all inclusive in nature. The Assessing Officer is requested to carry out in depth investigation and examine the impounded books of accounts/computed hard disks, statements recorded etc. to arrive at his/her own conclusion. The Trial balance and .....

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resulted a declaration of ₹ 22 crores as additional income whose break up is as under:- Financial Year In the hands of API Construction (Prop. Inervadan Jain) (in.Rs) Indra Construction Co. (Prop.Arvind Jain(ind.Rs.) 2009-10 3,00,00,000/- 1,00,00,000/- 2010-11 1,30,00,000/- (which has already been declared during the course of survey u/s.133A on 1.3.2011) 70,00,000/- (which has already been declared during the course of survey u/s.133A on 1.3.2011) 4 2011-12 12,00,00,000 4,00,00,000/- Tot .....

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ly, without application of mind and without analyzing the statements. 8.3.14. I have considered the submissions made by the AO as well as by the A.R. of the appellant in this regard. In answer to Question No.?, during the course of survey, before it was temporarily concluded at 10.30 p.m. on 14.1.2012, Shri Arvind Jain had stated that materials are purchased not only from entities run by Shri Mafatlal V Shah but also from other concerns. He had also mentioned that the purchase orders are placed .....

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etails would be submitted in due course. Finally in answer to question NO.16 he had agreed that there is some element of inflation of expenditure on purchase of materials on account of which ₹ 5.7 crores was admitted as additional income in the hands of M/s.lndra Construction Co. and ₹ 16.3 crores in the case of M/s.API construction Co., Prop. Shri Indervadan Jain for F.Ys.2009-10 to 2011-12. 8.3.15. It is worth mentioning here that in the post survey statement recorded by the DDlT o .....

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of Mr. Mafatlal Shah and also from the some other concerns in our statement. Please comment. Ans. again reiterate that Indra Construction Company and API Construction might have taken accommodation entries from the concerns of Mr.Mafatlal Shah and also from some other concerns for generation of cash for business needs. Q.9. . Do you know 21 about these fictitious concerns, some of which are being run by Mr.Mafatlal Shah(Serial No.1 to 19). S.No Name of the concern Sl. No. Name of the concern 1 .....

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Enterprises 32 Karan Enterprises 14 Sambhav Traders 33 Proman Agencies Pvt. Ltd. 15 Shree Sai Enterprises 34 Shree Enterprises 16 Sundesha Enterprise 35 Simplex Corporation 17 Vardhman Traders 36 Padmavati Enterprises 18 Vatsa Enterprises 37 Modern Spun Pipe 19 Vruksha Enterprises 38 SAPNA Traders 39 Hermitage Trading Company Private Limited. You have now also submitted to me the name of the parties from whom you have made purchases during the F.Y.2008-09, 2009-10, 2010-11 & the current year .....

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ah and also from some other concerns for generation of cash for business needs." The above clearly shows that the appellant had stated that accommodation entries might have been taken from concerns of Shri Mafatlal V Shah. To a specific question with regard to the loose papers found and impounded in Annexure A-1 to A-5 and B-1 & B-2, he has mentioned that all the purchases of materials are bonafide but he is not in a position to file the supporting documents like lorry receipts, deliver .....

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x Department out of which Mr.Mafatlal V Shah was running about 19 fictitious concerns( the names of which were enumerated in question No.9). As mentioned already the AO had issued notice u/s.133(6) to only two parties by name M/s.Deep Enterprises and M/s.Forum Traders out of 12 parties. For the reasons best known to the AO. no notice was sent to the remaining 10 parties. It is not clear as to why the AO who is at the rank of Addl. Commissioner of Income tax chose not to issue notice to the remai .....

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claim of the appellant even at the assessment stage was that the payments to all the 12 parties were made by way of account payee cheques which the AO was very much aware. However I am unable to understand why the AO ( Addl.Commissioner) failed to trace how the cheques have been cleared. He did not obtain the copies of the bank accounts where the cheques got cleared and try to analyse whether immediately after clearing, cash was withdrawn only to pay it back to the appellant. I wonder what preve .....

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case was heard and the materials were forwarded to me in bits and pieces on 3 occasions. The whole lot could have been filed at once. The AO did not even apply his mind before giving a submission. He did not verify whether the 12 parties on whom the addition was made were out of 39 parties supposed to have issued bogus bills. The AO had conveniently omitted the portion of the statement where the appellant admitted that the material purchases were genuine and highlighted only the portion of the .....

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. 1. The Hon ble SC had held that though admission is an extremely important piece of evidence but it cannot be said that it is conclusive in the case of Pullamcode Rubber Industries reported in 91 ITR '18 (SC). The statement recorded have to be corroborated with other materials. 2. CIT vs.Kadarkhan 300 ITR 157(Madras} Income-tax survey-Scope of section 133A-Difference between sections 133A and 132(4)-Statement in survey operations-Not conclusive piece of evidence-Statement by partner in sur .....

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en a proper opportunity to show that the books of account do not correctly disclose the correct state of facts; (ii) in contradistinction to the power under section 133A, section 132(4) enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Act. On the other hand, whatever statement is recorded under section 133A is not given any evidentiary value obviously for the reason that the officer is .....

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(v) the word "may" used in section 133A(3)(iii) of the Act, viz., "record the statement of" any person which may be useful for, or relevant to, any proceeding under this Act" makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. 3. This decision of Hon.Madras High Court got affirmed by Hon.Supreme Court in appeal Nos.13224 of 2008 & 6747 of 2012 dt.20.09.2012. This .....

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n on oath is specifically conferred on the authorised office only under section 132(4) in the course of any search or seizure. Thus, the Income-tax Act, whenever it thought fit and necessary to confer such power to examine a person on oath, has expressly provided for it, whereas section 133A does not empower any Income-tax Officer to examine any person on oath. Thus in contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examin .....

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see surrendered an amount of ₹ 99,50,000 and offered it for the purposes of taxation. The additional income offered included a sum of ₹ 45,00,000 on account of excess stock found during the course of survey and offered by one of the partners of the assessee as additional income. The answer by one of the partners of the assessee was he could not explain the difference and to buy peace of mind offering additional income of ₹ 43 lakhs for the current financial year, i.e., assessme .....

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uded that the explanation/retraction by the assessee was an afterthought and had no element of truth. The Commissioner (Appeals) deleted the addition holding that the Assessing Officer did not make any independent enquiry and further that the Assessing Officer had not made out a case that the amount surrendered during the survey operation had not been included in the final books of account. The appeal filed against this order by the Revenue before the Tribunal was dismissed. On further appeal: H .....

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ve piece of evidence by itself. It was settled law that though an admission was an extremely important piece of evidence, it could not be said to be conclusive and it was open to the person who had made the admission to show that it was incorrect. Since the assessee had been able to explain the discrepancy in the stock found during the course of survey by production of relevant record including the excise register of its associate company, the Assessing Officer could not have made the addition s .....

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3 SOT 251 8. 6 ITR (Tribunal) 37 (Delhi) 9. 127 ITR 327 10. 23 DTR 171 8.3.20 There were no materials gathered even by the ADIT(lnv.) either during the course of surveyor after the survey to show that the material purchased were bogus and the appellant had inflated the purchases. The ADIT also did not make enquiries with any of the alleged suspicious suppliers. As mentioned in the Survey report the appellant had made specific disclosure for the F.Y.2009-10 to 2011-12 and hence the statements rec .....

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ials purchased by obtaining bogus bills. Further the appellant had completed the contracts undertaken which were duly acknowledged by the Municipal Authorities and payments were made after due verification. Hence in the absence of any material to show that the purchases from the 12 parties are bogus no adverse inference can be drawn purely on the basis of statement alone recorded during the course of survey. 8.3.23. The appellant relied on the following decisions in support of his contention tha .....

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ax vs Leader Valves P Ltd (vi) Balaji Textile Industries (P) vs Third income Tax Officer (vii) Diagnostics vis. CIT reported in 334 ITR 111 Culcutta (viii) Gujarat Sanjay Oilcake Industries vs CIT reported in 316 ITR 274 (ix) Gujarat DCIT vs Adinath Industries reported in 252 ITR 476 (x) CtT vs M K Bras reported in 163 ITR 249 (Guj) (xi) 134 TT J 167 Delhi CTR Volume 50 Part VI page 39 I have gone through the above decision which supports the case of the appellant. In view of the above, the addi .....

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ported by records and respective certification by BMC authorized personal. A clear finding has been recorded by the CIT(A) with respect to these purchases and utilization with corroborative evidence and certification by the government authorities. Quantitative materials data were filed with workwise summary. The CIT(A) also observed that no adverse material was brought on record to the effect that assessee has received cash back against payment so made. All the materials were supplied at the sit .....

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