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2016 (5) TMI 204 - MADRAS HIGH COURT

2016 (5) TMI 204 - MADRAS HIGH COURT - [2016] 383 ITR 165 - Disallowance u/s 40A(3) - Held that:- Where disallowance is made under section 40A(3) of the Act in respect of entries made in regular books of account, which have no relation with the undisclosed income, or the entries not recorded in the books of account or documents unearthed during the search, such allowance cannot be treated as part of the undisclosed income. However, if such expenditure relates to undisclosed income found during t .....

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ures (Madras) Limited v. Asst. CIT [2002 (4) TMI 16 - MADRAS High Court] the Appellate Tribunal had dismissed the appeal filed by the assessee.

Having considered the reasons given by the Appellate Tribunal, we are fully convinced that there is no error in the impugned order passed by the Appellate Tribunal, dated June 16, 2006. In the given facts and circumstances of the case, it is clear that the provisions of section 40A(3) of the Act would be applicable. As per the provisions of th .....

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erfere with the order passed by the Appellate Tribunal, dated June 16, 2006. - Decided in favour of the Revenue and against the assessee - Tax Case (Appeal) No. 2408 of 2006 - Dated:- 25-11-2015 - M. Jaichandren And S. Vimala, JJ. For the Petitioner :K. R. Ganesh Kumar For the Respondent :S. Sridhar JUDGMENT M. Jaichandren, J. 1. This tax case appeal has been filed against the order passed by the Income-tax Appellate Tribunal "B" Bench, Chennai, in IT(SS)A No. 21/Mds/2006, relating to .....

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etor of A. R. C. Ganesh Kumar and Company dealing in gold jewellery. The Department had carried a search, in terms of section 132 of the Act, on May 23, 2003, simultaneously, at the residential, as well as at the business premises of the appellant, at Mayiladuthurai, Neyveli and at Chennai. 3.2. Consequent to the search operations, a notice, under section 158BC of the Act, had been issued, calling for the block return relating to the block period, from April 1, 1997 to March 31, 2003, and the pa .....

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ing Officer had invoked section 40A(3) of the Act, to make a dis allowance of ₹ 40,11,818 in the computation of undisclosed income, for the block period. While holding so, the Assessing Officer had concluded that the offer of the value of peak purchase of gold jewellery would in no way prohibit the disallowance contemplated in terms of section 40A(3) of the Act. 3.4. It was held in the block assessment order, that certain transactions, as per the seized documents, had been found to be unac .....

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ent of cash and the details of the quantity contained in the loose sheets, in respect of each purchase, indicate that the quantity purchased is more than 40 grams of gold jewellery. As such, it could be seen that the purchase expenditure would be more than ₹ 20,000, adopting the rate of ₹ 500 per gram. Thus, the expenditure towards the entire purchase of gold jewellery would work out to 40,118.179 grams. The statutory disallowance of 20 per cent. of the said amount, as per section 40 .....

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0 to 37 of the Act, the pre-conditions envisaged in section 40A(3) of the Act had not been satisfied and hence, the disallowance resulting in the assessment of the undisclosed income was wrong, erroneous and unjustified in the facts and circumstances of the case. 3.6. It had been further contended that the purchase of 40,118.179 grams of gold jewellery were related to unaccounted business. The said position having been admitted it could be reasonably inferred that no proper books of account had .....

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had arisen on account of the legal fiction envisaged in section 40A(3) of the Act. Considering the contentions raised on behalf of the assessee the Commissioner of Income-tax (Appeals)-II, Chennai, had held that the present case is a search and seizure case, where the addition had been made on the basis of the materials found, evidencing unaccounted purchase in cash. It could be distinguished from a case in which there was no search and seizure. As such, section 40A(3) could be applicable to th .....

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he purchase of gold exceeding ₹ 20,000, as such expenditure was found recorded in certain loose sheets discovered during the course of search and seizure operations. Accordingly, the order passed by the authorities had been upheld by the Tribunal. 3.9 Challenging the said order the assessee had filed the present tax case appeal before this court, raising three substantial questions of law. This court while admitting the tax case appeal had entertained the follow ing substantial question of .....

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16, 2006, is contrary to the facts and circumstances of the case. The Tribunal had erred in confirming the disallowance of ₹ 40,11,818, in terms of section 40A(3) of the Act, being 20 per cent. of the value of the gold jewellery purchased, as reflected in the loose sheets found at the time of the search made under section 132 of the Act, while framing the block assessment, in terms of section 158BC of the Act. 5. It had also been stated that the Tribunal had failed to appreciate that the .....

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le in law. The Tribunal had failed to appreciate the fact that there was no evidence, whatsoever, to substantiate the fact relating to the purchase of gold jewellery, in cash, exceeding ₹ 20,000, even though certain loose sheets had been seized during the search and seizure operations. It was a mere inference of cash purchase and therefore, the disallowance is erroneous. It had been further stated that the undisclosed income with reference to the loose sheets, having been assessed on the v .....

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tion. It had also been stated that, as the assessment for the value of gold jewellery recorded in the loose sheets had been made on an estimated basis, by resorting to "peak purchase", the disallowance on cash purchase would amount to double taxation. Further, there was no proper opportunity given to the assessee before the impugned order had been passed, by the Appellate Tribunal, and as such, the impugned order of the Tribunal had been passed contrary to the principles of natural jus .....

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