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2016 (11) TMI 961 - ITAT MUMBAI

2016 (11) TMI 961 - ITAT MUMBAI - TMI - Unexplained investment u/s.69 - unexplained expenditure u/s 69C - survey conducted - Held that:- The whole exercise of revenue was based on conjectures and surmises and there was no material on record which proved that the renovation work was met out of money other than the borrowed from the Bank, nor could the AO or ld.CIT(A) record any findings that the assessee had any other source of income apart from its regular income of the assessee. In our opinion, .....

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action - Decided in favour of assessee - Disallowance of depreciation on hotel building - Held that:- We find that the assessee has already proved before the authorities below that the assessee has incurred expenditure for the purpose of construction and renovation of the hotel for creating some more space/rooms for residential purposes and the source was out of money borrowed from Corporation Bank. We have already decided in grounds no.1 and 2 above that the source of renovation and repairs .....

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the assessee has already proved that the renovation and construction of hotel out of funds borrowed from the Corporation Bank which has already been elaborately discussed while deciding grounds of appeal no.1 and 2 of this appeal and decided in favour of the assessee. In our opinion, the assessee has proved that the loan was taken ,borrowed and used for the purpose of business of the assessee and therefore , the assessee is entitled to claim the depreciation on the amount of expenditure capital .....

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ntary disclosure which was specifically made to cover any expenses , notings or cash transactions as per the affidavit as in respect of suo motto disclosure no other materials was found. We are, therefore, not in agreement with the findings of the ld. CIT(A) in upholding the addition. In our opinion, the same should be allowed to be covered and adjusted against the surrender of ₹ 50 lakhs at the time of filing of return of income - Decided in favour of assessee - Addition u/s 69C - Hel .....

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.4739/ Mum/2011, I.T.A. Nos.5498/ Mum/2011 And 5111/Mum/2012 - Dated:- 8-11-2016 - Shri Joginder Singh (JM) And Rajesh Kumar (AM) Assessee by : Shri Vijay Mehta Revenue by : Shri Ramchandran ORDER Per Rajesh Kumar, Accountant Member These are the fours appeals filed by the respective parties. ITA No.4075/Mum/2011 and ITA No.4739/Mum/2011 are cross appeals and they are directed against the order dated 31.3.2011 passed by the ld.CIT(A) for the assessment year 2007-08. Appeals bearing I.T.A. Nos.54 .....

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e assessee are as under : 1. On the facts and in the e circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in upholding the addition of ₹ 6,76,23,000/- made by the AO as unexplained investment u/s.69 on the basis of noting made in page 4 and 5 of the loose papers file Annexure A found and impounded at the premises of the appellant. 2. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the addi .....

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e of interest of ₹ 22,75,714/- paid to Corporation Bank. 5. On the facts and in the circumstances of the case, the learned Commissioner of Income tax (Appeals) erred in upholding the addition as unexplained expenditure under section 69C amounting to ₹ 44,81,000/- made by the Assessing Officer on account of the following: File Name (Computer date) Total amount of Unexplained Expenditure Rs. Empire Hotels CD\city4\d\c backup 25.11.06\My Documents Oct 06 cash.xls 7,30,000/- Empire Hotel .....

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crutiny and the statutory notices under section 143(2) and 142(1) of the Income Tax Act, 1961 were issued and served upon the assessee. The assessee was engaged in hotel business i.e. lodging and boarding. A survey was conducted on the assessee u/s 133A of the Act on the premises of the assessee on 11 th and 12th May, 2007 by ADIT V(4), Mumbai during which certain loose papers which contained the details of cash receipts and payments were found and seized and were accordingly communicated by the .....

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d.CIT(A) as made by the AO u/s 69 as unexplained investment on the basis of incriminating materials comprising loose papers found during the course of survey and the issue raised in ground no.2 is against the upholding an amount of ₹ 11,97,000/- by the ld.CIT(A) as made by the AO u/s 69C of the Income Tax Act, 1961 as unexplained expenditure. Both these grounds are being decided together . 5. Facts in brief are that during the course of survey proceedings on 11th /12th May, 2007 made on th .....

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y the heads under which the said amounts were spent and therefore he voluntarily offered this amount for taxation of ₹ 6,88,22,000/- as additional income over and above the regular income for the assessment year 2006-07. Just 3 days after another statement of Mr Kashan Ghaswala, Partner of the assessee was recorded on 15.05.2007 u/s 131 of the Act in which he stated while answering query no 2 that sources of ₹ 6,88,22,000/- were from the Corporation Bank and the details of pay orders .....

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ion Bank to various parties on behalf of the assessee firm i.e.M/s Alliance Hotel. The assessee submitted that some renovation work at third floor of Empire Building was carried out for converting the same into residential rooms for hotel purpose and therefore, the assessee required substantial amount of money which was arranged by the assessee from Corporation bank by way of loan. The disbursements from the Corporation Bank were released through pay orders in the name of the suppliers of goods .....

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sion. In other words the said parties only provided accommodation entries. The said cash received back by the assessee through the said accommodation entries was used to pay the contractors and suppliers who actually carried out the renovation and repair /civil work of the assessee hotel. A statement was recorded during the survey proceedingsof Mr Kashan Ghaswala and in reply to the question no.2, the assessee stated that the source of expenditure shown at pages 4 and 5 of the paper book were fr .....

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ceived from Corporation Bank and the assessee time and again submitted that the said cash received from the parties who provided accommodation entries after commission of one per cent was used in the construction of hotel. The details of parties in whose names the pay orders were issued by the assessee were also given by the AO at page no.5 of the Assessment Order. Lastly, the assessee submitted that since the source of expenditure of ₹ 6,88,22,000/- was fully explained out of the cash tak .....

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most of the cases these parties were not found as the premises were used for residences and only in the case of M/s Priyanka Corporation, it was confirmed by the watchman that the letters in the name of M/s Priyanka Corporation were received off and on. The AO observed that the assessee failed to submit the details of expenditure incurred on various dates and also name and addressed of the parties who actually supplied the materials and carried out the construction work. The AO also observed th .....

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. At page 13 of the assessment order, the assessee noted that out of ₹ 6,88,22,000/- some outflow were for the purpose of construction and renovation and also for the purpose of investments. The AO also noted that the assessee has not recorded expenditure made in the November 2006 amounting to ₹ 11,97,000/- in the books of account, therefore, treated the same as unexplained expenditure u/s 69C of the Act and balance of ₹ 6,76,23,000/- was treated as unexplained investments u/s .....

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for construction from Corporation Bank, that the loan disbursement was made by way of pay orders issued by the bank directly to the contractors named by the appellant, that the appellant had named bogus parties as contractors, that these parties issued accommodation bills and on receipt of the pay orders from the bank, discounted them for a fee @ 1 % and then returned the balance amount in cash to the appellant. Though the method of financing construction as claimed is ingenuous, the appellant .....

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y of such contractors/workmen. Further the amounts mentioned at pages 4 & 5 of the impounded papers (Rs. 6.88 crore) referred to by the Assessing Officer do not match with the amount of pay orders issued by Corporation Bank (Rs.7.85 crore). Even if the explanation of the appellant that the amounts mentioned are amounts disbursed by Corporation Bank less the discounting fee, (of 1%), the amount would work out to ₹ 7.78 crore. Further page 5 mentions on the left hand side, besides 'C .....

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ut any corroboration, none has been provided either by producing the parties who discounted, parties who completed the work. No link has been established between the funds raised from the bank and the outgoings, either on the basis of dates of receipt and expenditure other evidence as discussed above. Similarly as regarding the addition u/s 69C, the appellant has claimed firstly that these are out of funds raised from Corporation Bank and hence source is explained and secondly that the expenses .....

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by the order of ld.CIT(A), the assessee is in appeal before us. 7. The ld. AR vehemently submitted before us that the order passed by the ld. CIT(A) was wrong and against the facts of the case on records. The ld. AR submitted that the AO himself admitted in the assessment order that the renovation of the hotel premises has taken place and further held that the purpose of incurring the expenditure of ₹ 6,76,23,000/- has not been explained by the assessee and these payments were made to be r .....

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urce of the assessee was by way of loan from Corporation Bank. It was also corroborated from the loose papers impounded during the search /survey operation which stated the source of funds for making various payments as detailed therein from the Corporation Bank. The ld. AR further argued that the AO could not establish that there was any other source of money available with the assessee apart from the loan from the Corporation bank which was used for the purposes of renovation and the modus ope .....

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in the assessment order were nothing but guess work and imagination of the assessing officer without any corroborating evidences and materials. The ld. AR drew our attention to the page 13 of the assessment order in which the AO has noted that Apart from this the sheer quantum of ₹ 6.88 crores indicates that the outflow must have been utilized for building assets (construction/renovation/loans). Thus, there was no doubt in the minds of the AO that renovation was carried out in the hotel an .....

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in its hotel while upholding the order of the AO which was confusing and contradictory. The ld. AR also placed a copy the decision in the case of ITO V/s Shri Parvez Mohammed Hussain Ghaswala in ITA No.3314/Mum/2013 for the assessment year 2004-05 and ITA No.819/Mum/2012 for the assessment year 2007-08 composite order dated 30.10.2015, wherein the Tribunal while deciding the departmental appeal for the assessment year 2007-08 has considered the issue of ₹ 2,62,40,000/- which was comprised .....

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based on conjectures and surmises without any concrete evidence in his possession and also held that the provisions of section 69A of the Act has no application in the case of the assessee and was rightly deleted by the First Appellate Authority ₹ 2,62,40,000/- + ₹ 40,00,000/- aggregating to ₹ 3,02,42,000/-. Finally, it was vehemently argued that since the addition of ₹ 2,62,40,000/- was based on same loose papers no 4 and 5 has deleted by the by the CIT(A) which was uphe .....

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paper no 4 and 5 were deleted by CIT(A) and upheld by the Tribunal specially in view of the fact that the renovation and repairs were duly explained with sources out of the loan taken from the Corporation Bank, and praying that the addition of ₹ 6,76,23,000/- be deleted. Similarly, an amount of ₹ 11,97,000/- was incurred as expenditure on renovation of hotel and on the same analogy the said addition be deleted in view of the facts and arguments considered by the Mumbai Bench of the T .....

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ed and as a result of which he voluntarily offered ₹ 6,88,22,000/- as additional income over and above the regular incomer declared by the assessee in the return of income for the assessment year 2007-08 in the hands of the assessee firm. The mere retraction of surrender vide letter dated 7.6.2007, the assessee could not be allowed to retract the offer which it had made suo mottu voluntarily at the time of recording of statement as the withdrawal/retraction of the same was an after thought .....

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ack the same to the assessee and the said construction and renovation was completed out of the cash received by the assessee from those five parties the details whereof were given at page 5 of the assessment order. The facts were proved by the verification carried out by the Inspector deputed by the AO that none of the parties were in existence except M/s Priyanka Corporation. All these facts showed that retraction of the assessee was an afterthought and therefore there was no merit in the argum .....

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erused the material placed before us including the orders of authorities below. We find that a survey was conducted u/s 133A on the assessee on 11th and 12th May, 2007 and a surrender/disclosure of ₹ 6,88,22,000/- was made on 12.5.2007 at the time of recording the statement u/s 131 of the Act in relation to the assessment year 2007-08 when the Mr Kashan Ghaswala a partner in the assessee firm could not explain the entries in the loose sheets no 4 and 5 containing some cash receipts and pay .....

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ed. However, in the retraction letter, the assessee submitted that the expenditure was incurred on the hotel renovation as recorded at page 4 and 5 of the impounded documents during the course of survey and the sources of the said expenditure were out of loan taken by the assessee from the Corporation Bank. The assessee also submitted that one of the condition by the bank for sanctioning the loan was that all the pay orders would be issued only in the name of the third parties i.e suppliers and .....

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the contractors and suppliers of material who carried out the renovation and repairs on the 3rd floor of the hotel for creating residential rooms. We find that at page 4 and 5 of impounded documents there were details of receipts and payments. As per descriptions on the paper no 4 and 5 the assessee received ₹ 6,88,22,000/- and there were payments to various parties for the capital expenditure and cash in hand ₹ 4,70,000/- qua the page no 5 titled as Corp Cash (cash expenditure deta .....

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on and repairs of the hotel for creating more residential rooms for the purpose of which the assessee has raised loan from the Corporation Bank and the said renovation/construction was financed out of cash received by the assessee by making necessary arrangement with the bank. Further, the AO and ld. CIT(A) has also admitted that the assessee might have incurred some expenditure on renovation /construction/loans. We also find that the fact of repairs and renovation having been carried out by the .....

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evenue was based on conjectures and surmises and there was no material on record which proved that the renovation work was met out of money other than the borrowed from the Bank, nor could the AO or ld.CIT(A) record any findings that the assessee had any other source of income apart from its regular income of the assessee. In our opinion, the assessee has explained the source of expenditure and the nature of expenditure incurred and therefore the Additions made by the AO u/s 69 of the Act as une .....

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ounded during the course of survey from the assessee and which were also the basis for making additions in the hands of the assessee which are subject matter of the current appeal before us. The additions in the hands of Mr.Parvez Ghaswala, the partner of the assessee-firm was made on the basis of same documents page no 4 and 5 found during the survey action as in the case of assessee. The Tribunal vide para 6 has held as under : 6. After going through the rival submissions and material on recor .....

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esh Sir did not relate to him, as stated by Kasam Ghaswala, partner of Alliance Hotel. Further stand of the assessee has been that these slips of paper were recovered from the business premises of Alliance Hotel and not from assessee. These slips of paper bearing No. 4 & 5 and cash statement dated 18.11.2006 were not in his handwriting. Assessee was also not called by the survey party for recording his statement in relation to papers found during the course of survey proceedings in the premi .....

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d during the course of survey action conducted at the premises of Alliance Hotel. It is undisputed that papers showing the name of Parvez Sir were found in the premises of Alliance Hotel during the course of search action and not from assessee. Papers found were not in his handwriting. The partner of Alliance Hotel, Shri Kasam Ghaswala in his statement has stated that payment made to Parvez Sir is not the amount paid to the assessee. Neither the survey party nor the Assessing Officer of Alliance .....

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e was not found to be the owner of any money, bullion, jewellery or any other valuable articles in previous year relevant to assessment year. In such a situation invoking of provisions of section 69 was not justified. The entries made on pages 4 & 5 of the impounded papers were not made contemporaneously. The right hand top corner of page 5 shows that the entries were made on 19.12.2006 (after the assessee retired from the firm), the transactions as such relate to 11.11.2006, 11.12.2006, 16. .....

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other valuable articles. No concrete evidence has been brought on record by Assessing Officer to establish that the entry Parvez Sir in the impounded paper establishes the fact that it refers to the assessee, i.e. Shri Parvez Mohammed Hussain Ghaswala. Similarly the amount of ₹ 2,62,40,000/- mentioned against the entry of Parvez Sir was ever paid to the assessee. Assessing Officer had made the addition only on surmise that the impounded papers bearing No. 4 & 5 were containing entries .....

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was subsequently turned out to be illegal and was demolished. This fact was further corroborated by the order of the Brihyan Mumbai Mahanagar Palika bearing No. ACA/180/MOHA/di. 19.03.2009, clearing mentioned that the said firm had constructed unauthorized construction of mezzanine floor and additional room with attached toilet in Alliance Hotel, 3rd floor, Empire Building. The fact of reconstruction of Alliance Hotel was accepted by Shri Kasan Ghaswala, being Managing Partner of the firm. In vi .....

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0,000/-, added by Assessing Officer of the assessee to the total income of the assessee. Thus, Assessing Officer of Alliance Hotel was of the opinion that over and above ₹ 2,62,40,000/-, no further addition of ₹ 40,00,000/- is required to be made. In view of our discussion coupled with the fact that provisions of section 69A has no application on the act of assessee s case therefore, the addition of ₹ 40,00,000/- made by Assessing Officer under section 69A of the Act was rightl .....

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on the basis of loose papers page no 4 and 5 impounded during the course survey action to the tune of ₹ 2,62,40,000/- + ₹ 40,00,000/- totaling to ₹ 3,02,40,000 holding that the same were made on the basis of surmises and conjuncture and rightly deleted by the ld.CIT(A). Following the same analogy and the ratio laid down in the said decision and also the facts that no corroborating materials were found by the department to make these additions. Therefore, we set aside the order .....

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O on page no 21 and 22 of the assessment order and not ₹ 6,88,22,000/- as claimed by the assessee. The AO further noted that the Corporation Bank made disbursements to five parties for bogus bills details whereof was given on page 15 of the assessment order. The assessee has capitalized only ₹ 4,59,81,929/- out of ₹ 7,85,01,143/- in assessment year 2007-08 and depreciation was also claimed accordingly at ₹ 22,99,096/- in assessment year 2007-08 and notwithstanding the pay .....

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ould be disallowed in the year of addition as depreciation on the addition were unsupported by the vouchers and could not be allowed for the various reasons as given in para 6.9 at page 22 which are reproduced below:- 6.9 The disbursements made by Corporation Bank on account of bogus bills amounts to ₹ 7.,85,01,143/-. As the assessee has capitalized only ₹ 4,59,81,928/• out of the above in the AY 2007-08. Hence the depreciation on the same being ₹ 22,99,096/- is disallowed .....

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er he retracted his statement and to explain the papers he took resort of dual explanation. On the one hand he explained that the source of the funds was loan from the bank. On the other hand, he contended that the expenditure mentioned in the sheet is the expenditure for the renovation of the hotel. He indeed capitalized the same, without the bills supporting that. In the FY 2006-07, as per the submissions of the assessee, he capitalized ₹ 4,59,81,928/- of expenses. » The assessee f .....

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penditure on the renovation of the assessee was incurred by the assessee much earlier therefore the contention of the assessee is again factually incorrect. » Assessee has submitted the wrong cost estimate of the renovation of the hotel to the bank and the difference is almost equal to the amount of bogus bills entered by the assessee. Therefore the cash received from the bogus bill parties cannot be related to the expenditure on the renovation of hotel. » Even the assessee has not t .....

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asset are bogus. All these facts together clearly establish that the contention of the assessee is not correct and depreciation cannot be allowed to the asseseee . 13. During the appellate proceedings, the ld.CIT(A) also upheld the action of the AO in disallowing the depreciation of ₹ 22,99,096/- by rejecting the submissions of the assessee vide para 3.3 of the appellate order by observing and holding as under:- 3.3 The assessment order, submissions made for the appellant and materials on .....

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he ld.AR vehemently submitted that the assessee has actually incurred capital expenditure under specific heads of fixed assets and capitalized in the relevant block of assets details whereof were also filed before the AO. The ld counsel further submitted that said additions/capital expenditure were met out of the loan from Corporation Bank. Accordingly the depreciation was claimed on hotel building which was being used for the purposes of business of the assessee of running the hotel and benefit .....

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and renovation of the hotel for creating some more space/rooms for residential purposes and the source was out of money borrowed from Corporation Bank. We have already decided in grounds no.1 and 2 above that the source of renovation and repairs were out of funds arranged from the Corporation Bank by the assessee firm. Accordingly we are of the considered opinion that money spent by the assessee towards construction and renovation in the block of assets was eligible for depreciation as the same .....

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ported by the genuine bills and vouchers, the interest on such funds also needed to be disallowed especially when the loan itself was not used for the purpose of business how the interest on the same would be treated as business expenditure. Accordingly, on the same analogy the interest paid of ₹ 22,75,714/- was disallowed by the AO. 19. In the appellate proceedings, the ld.CIT(A) also upheld the action of the AO. 20. After considering the rival submissions and perusing the relevant materi .....

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the amount of expenditure capitalized during the year. On the same analogy , the interest on loan from Corporation Bank would be allowed as admissible expenses. Accordingly, we set aside the order of the ld. CIT(A) and direct the AO to allow the claim of the assessee qua interest expenses of ₹ 22,75,714/-. 21. The issue raised in ground no.5 is against the confirmation of addition of ₹ 44,81,000/- by CIT(A) which was made by the AO on account of unexplained expenditure u/s 69C of the .....

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payments. 23. During the course of appeal proceedings, the ld. CIT(A) partly allowed the appeal of the assessee by deleting the addition to the extent of ₹ 1,57,85,000/- and sustained the remaining amount of ₹ 44,81,000/- by observing and holding as under : 5.3 The assessment order, submissions made for the appellant and materials on record have been considered. The computer was found' in the premises of and under the control of the appellant and thus the presumption is that the .....

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the sheets referred to by the AO relate to Upadastra account, Stamp House (Botawala), Reliable Investments & Developers and Maria Developers. In view of the fact that the photocopy of property card filed shows the names of owners as earlier owned by Upadrasta Group which was transferred in the names of Javed Mohd Hussein, Irfan M Yusuf Vaid, Abrar Irfan Vaid (carrying n business in the name and style of Reliable Investments & Developers). Further that Shri Javed Mohd Hussian and Shri Jav .....

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ditions as sustained by the ld.CIT(A) at ₹ 44,81,000/- has already been covered by the assessee by making suo-motto disallowance of ₹ 50 lakhs in the computation of income and also stated in the affidavit dated 11.6.2007 filed by the assessee before the AO a of copy which was filed at page 21 to 26 of the paper book. Therefore, ₹ 44,81,000/- be considered and adjusted out of the suo mottu disallowance already made by the assessee in the computation of income and accordingly the .....

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taxes were paid accordingly. We also find from the statement of the total income filed at pages 39 to 40 of the paper book, wherein a sum of ₹ 50 lakhs was shown as income to cover all defects and discrepancies as filed at page 39 of PB which is extracted below:- Add: income offered to cover any expenses, noting jottings, shortfall in cash expenses, or any other item, any defect, in reconciliation of the impounded material, any defect in the regular books of accounts on account of the cash .....

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ions as per the affidavit as in respect of suo motto disclosure no other materials was found. We are, therefore, not in agreement with the findings of the ld. CIT(A) in upholding the addition. In our opinion, the same should be allowed to be covered and adjusted against the surrender of ₹ 50 lakhs at the time of filing of return of income. Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to delete the addition of ₹ 44,81,000/- made u/s 69C of the Act. 3. ITA No. .....

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le Investment & Developers. 1 (a) While doing so the Id. CIT(A) failed to appreciate the fact that its mere denial of relation of the firm in the data stored in the name of Javed Ghaswala and also the assessee has not produced any supporting evidence to prove his contention. 2) "The appellant prays that the order of the CIT(A) on the above ground(s) be set aside and that of the Assessing Officer be restored". 27. The issue raised by the revenue in the ground No.1 is against the del .....

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drasta Group which was not in any way related to assessee. However, the AO added the same to the total income of the assessee u/s 69C of the Act . During the appellate proceedings, the ld. CIT(A) deleted the said addition by holding that : 5.3……. However with regard to addition with regard to file RELlABLE_EXPS.xls, it has been stated in appeal order dated 31/03/2011 in the appellant's appeal for AY 2006-07 in appeal No. CIT(A)-23/ACIT 12(1)/IT- 357//08/09 that "It is seen .....

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sian and Shri Javed Ghaswala are one and the same person, no addition can be made in the hands of the appellant in respect of these entries.". Since the entries on file RELlABLE_EXPS.xls pertain to Botawala Building and Upadastras Bldg, Maria Developers, on the same reasoning as in appeal for AY 2006-07, addition in respect of expenses relating to file RELlABLE_EXPS.xls are deleted. 29. We have heard the rival submissions and perused the material placed before us. We find that the ld.CIT(A) .....

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