TMI Blog2018 (10) TMI 1857X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO as unproved penalty and sustaining only 20% of the said expenditure - HELD THAT:- CIT(A) after correctly appreciating the facts of the present case had concluded that the assessee had made payments to M/s. Pancharatna Plastics. Even the auditors in their tax audit report had made an observation that the assessee had made payments to persons specified in section 40A(2)(b) which prompted the AO to call for the information/details in relation to this expenditure. Although the assessee had furnished the details of expenditure, however the AO disallowed the entire expenditure u/s 40A(2)(b) on the ground that no corroborative evidence was furnished. The Ld. CIT(A) correctly concluded that if no corroborative evidence in relation to this expenditure was coming forth from the assessee then, the AO ought to have disallowed this expenditure under section 37 and not under section 40A(2)(b). CIT(A) also correctly appreciated that the question of disallowance would arises only where there is excessive payment of expenditure to such person who are referred in clause (b) of section 40A (2) of the Act and in the instant case, it is the father of the appellant. In this case, the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction by entering the residential premises of the assessee and Kelvin R. Shah was in no way connected with the activities of the assessee CIT(A) had correctly mentioned that AO had disregarded assessee s own books of accounts which were regularly maintained and assessee is also regularly assessed to tax. It was correctly appreciated that AO had just taken the print-outs from the laptop Mac-book of one Mr. Kevin Rajendra Shah, the younger brother of the assessee who had nothing to do with the business activities of the assessee and had proceeded to make an add back to the appellant's returned income as Unexplained Expenditure U/s 69 of the Act. The income based on such guess work has no place in law and the same requires to be deleted. - Decided against revenue. Addition based on survey proceedings - mention of expenses in Mac-book of Brother and found at Brother's place - HELD THAT:- AO had disregarded assessee s own books of accounts which were regularly maintained and assessee is also regularly assessed to tax. As per the facts of the present, the AO had just taken the print outs from the laptop Mac book of one Mr. Kelvin R. Shah, younger brother of the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only 20% of the said expenditure u/s 40A(2)(b) without appreciating that the assessee failed to prove the genuineness and true nature of the expenditure allegedly made as reimbursement and that the disallowance should have been sustained in toto even though the section u/s 40A(2)(b) was wrongly mentioned by mistake. (3) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of ₹ 2,66,362/- made on account of the party in versions of the account of the party as in the books of the assessee and as furnished by the assessee u/s 133(6), on the basis of the additional evidence produced by the assessee without remanding the issue to the AO. (4) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of bogus purchases of ₹ 7,09,387/-, without appreciating the facts of the case . (5) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 3, 77,000/- without appreciating that the assessee failed to disclose the nature of expenses found in the laptop of his brother regarding regular use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies but same were returned with the remarks Unclaimed . The AO asked the assessee to submit various details, i.e. details of purchases made from these patties, copies of bills raised by the parties, ledger accounts, documentary evidences such as transportation bills/delivery challans, stock register, details of payments made etc. In response, the assessee did not furnish any such bills/invoices allegedly issued by these panics. The A.O passed order u/s 143(3) dated 28.03.20 13 assessed the total income at ₹ 5,60,66,790/- after disallowing purchases of ₹ 1,02,83,056/- as bogus purchases, ₹ 4,82,289/- as service charges to sister concern, ₹ 16,12,0751- as reimbursement of expenses by M/s Pancharatna Plastics, ₹ 2,66,362/- as difference in purchases made from M/s Landscape Enterprises, ₹ 7,09,387/- from M/s Swastika Enterprises, ₹ 3,01 ,0581- towards interest paid on VAT, ₹ 65 lakhs from loose paper impounded during survey, Rs,3,77,000/- as expenses, ₹ 13,65,000/- as bribe payments ₹ 3,22,23,780 /-. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 012, the Hon'ble ITAT, Mumbai observed that there was no material on record to say that the purchases made by the assessee was bogus except the general statement recorded by the Department in the case of Shri Rakesh Kumar Gupta, which was later onretracted. The Hon'ble ITAT held that in absence of any adverse material brought on record, the addition made in the case of assessee will be based on presumptiononly and it cannot be sustained in the eyes of law. 6.4.3. In the case of Shri Rajeev G. Kalathil, ITAT Mumbai, 1TA Nos. 6727/MUM/2012, 06/MUM/2014, it is held as under: We have heard the rival submissions and perused the material before us. We find that AO had made the addition as one of the suppliers was declared a hawala dealer by the VAT Department. We agree that it was a good starting point for making further investigation and take it to logical end. But, he left the job at initial point itself Suspicion of highest degree cannot take place of evidence. He could have called for the details of the bank accounts of thesuppliers to find out as whether there was any immediate cash withdrawal from their account. We find that no such exercise was done. Transportation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Hence, the addition of entire purchase amount cannot be made in the present case. Rather, the cause ofjustice would be met by making addition of a reasonable percentage of such purchases in order to fulfill the gap of any revenue leakage in aforesaid circumstances. Following the Gujarat High Court in the cases of Commissioner of Income Tax-I Vs Simit P Sheth, 356 ITR 451 and M/s. Bholenath Poly Fab Pvt. Ltd. Vs AO, 355 ITR 290, in the present case, 1 confirm addition to the extent of 12.5% of the alleged purchases of ₹ 1,02,83,056/- from the impugned parties, i.e., ₹ 12,85,382/- The appellant gets balance relief of ₹ 89,97,674/- Therefore, this ground of appeal is partly allowed. After having gone through the facts of the present case and hearing the parties at length, we find that as per the facts of the present case, the major activity of the assessee is to develop, maintain and beutify gardens for Municipal Corporation of Greater Mumbai (MCGM). However, on the basis of information received from the Sales Tax Department through DGIT(Invs.), Mumbai, the assessee had made purchases from M/s Mehul Traders, Yashitra Trading Co., Shivraj Traders and M/s Suya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vert or rebut the findings so recorded by Ld. CIT(A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed. Ground No. 2 7. This ground raised by the revenue is against challenging the order of Ld. CIT(A) in deleting the addition of ₹ 16,12,075/- made by the AO as unproved penalty and sustaining only 20% of the said expenditure u/s 40A(2)(b) of the Act. 8. We have heard counsels for both the parties at length and we have also perused the material placed on record, judgment cited by both the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 9.4 of its order and the same is reproduced below:- 9.4. I find that the appellant has made payments amounting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appellate order; I hold that the cause of justice would be met by disallowing a reasonable percentage of this expenditure in order to fill in the gap of any revenue leakage in such circumstances. 1, therefore, confirm the addition to 20% of the alleged disallowance of ₹ 16,12,075/-, i.e. ₹ 3,22,4141-. The appellant gets the balance relief of ₹ 12,89,66 1 /-. This ground is partly allowed. After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that the assessee had made payments to M/s. Pancharatna Plastics. Even the auditors in their tax audit report had made an observation that the assessee had made payments to persons specified in section 40A(2)(b) of the Act, which prompted the AO to call for the information/details in relation to this expenditure. Although the assessee had furnished the details of expenditure, however the AO disallowed the entire expenditure u/s 40A(2)(b) on the ground that no corroborative evidence was furnished. The Ld. CIT(A) correctly concluded that if no corroborative evidence in relation to this expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s disallowance. I have also considered the submissions made by the appellant. The appellant has on his part substantiated the details of purchases made by him from the said M/s. Landscape Developers and has also substantiated the payments made by cheques to the said M/s. Landscape Developers. The appellant has reconciled the figures of purchases and payments with this party and has arrived at negligible difference of ₹ 4,624/- as against the total purchase transaction of ₹ 43,25,579/-. I accept the contention of the appellant and delete the disallowance of ₹ 2,66,362/- made by the AO u/s 69. Therefore this ground of the appellant is allowed. After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that as per the facts, the assessee made purchases from M/s Landscape Enterprises and since, there was a discrepancy between the accounts of the assessee and the said M/s Lanscape Enterprise, therefore additions u/s 69 C were made. Ld. CIT(A) after appreciating the factual position had rightly concluded that the assessee has on his part substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count copy and the confirmation copy. However, the fact cannot be denied that the notice issued under section 133(6) of the Act issued by the AO to M/s. Swastik Enterprises returned un-served. I therefore, following my observations in paragraph no. 6.4.5 of this appellate order, I confirm an addition to the extent of 12.5% of the alleged purchases of ₹ 7,71,180/- (as claimed by the appellant, and not ₹ 7,09,387/- as observed and disallowed by the AO). The addition to the extent of ₹ 96,398/- is confirmed and the appellant gets a relief of ₹ 6,12,989/- accordingly. Therefore, this ground of appeal is partly allowed. After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that initially the assessee failed to substantiate the transactions with the said M/s. Swastik Enterprises, however placed confirmation of M/s. Swastik Enterprises and also a copy of ledger account from his books of account before Ld. CIT(A). As per the facts, the purchases are supported by purchase invoices and the payments were made by crossed cheques. Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in no way connected to the activities of the appellant and in-spite of his repeated requests the said laptop was impounded. A statement from Mr. Kevin Rajendra Shah was also recorded wherein he has admitted that the laptop belongs to him, configured by him and that he has no interest in any of the transactions being conducted by his elder brother Mr. Karan Rajendra Shah, the appellant herein. The appellant's representative strongly stressed to a point that the survey team exceeded the jurisdiction of conducting a survey at the residential premises of the appellant which is illegal and arbitrary and therefore all consequences and actions due to such illegal survey cannot be considered to fix the appellant for his lapses, if any. The appellant's representative also argued that the survey team has recorded a statement on oath from the appellant knowing pretty well that no such statement on oath can be recorded during survey as held by the Honorable Supreme Court in the ease of CIT Vs. S. Khader Khan Son reported in (2013) 352 I1'R 480 (SC). The appellant's representative further argued that the AO in paragraph no. 10 of his assessment order has referred to a statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder (headnote) : Under section 34 sanctity is attached in the law of evidence to books of account if the books are indeed 'account books', i.e., in original if they show, on their face, that they are kept in the 'regular course of business . From the ratio of above judgment of Hon'ble Supreme Court as well as of the Hon'ble Bombay High Court, it is abundantly clear that mere mention of expenses in Mac-book found at the premises of the appellant's brother cannot be considered as books of account. Moreover, as against thousands of information/details are found in brother's Mae-book, mere mentioning of expenses in Mac-book of which not a single corresponding entry is appearing in the appellant's regular books of account cannot be considered for disallowance by the AO without any material or evidence on record. Further, from the ratio of above judgment of Hon'ble Supreme Court as well as of the Hon'ble Bombay High Court, it is also crystal clear that once an appellant maintains his own regular books of accounts and no such mention of expenses in Mac-book or bills are found in appellant's premises and appellant being regularly asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained and appellant is also regularly assessed to tax. it is also seen that the AO has just taken the printouts from the laptop Mac-book of one Mr. Kevin Rajendra Shah, the younger brother of the appellant who has nothing to do with the business activities of the appellant and has proceeded to make an add back to the appellant's returned income as Unexplained Expenditure U/s 69 of the Act. The income based on such guess work has no place in law and the same requires to be deleted. In view of the above, I delete the addition amounting to ₹ 3,39,65,7801- (₹ 3,22,23,780+₹ 13,65,00/- +₹ 3,77,000/-). grounds no. 11th, 12th 13th of the appeal are allowed accordingly. After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that during the survey at the residential premises of the assessee, Laptop belonging to assessee s brother Mr. Kevin Rajendra Shah was found and impounded. On the basis of various print outs, the additions were made although, assessee had denied to have incurred such expenditure but AO rejected the stand of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the addition of ₹ 61,58,000/- made by the AO. 18. We have heard counsels for both the parties at length and we have also perused the material placed on record, judgment cited by both the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 10 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 10.6 to 10.8 of its order and the same is reproduced below:- 10.6 I have carefully considered the assessment order and the submission of the appellant. I find that the survey team has exceeded their jurisdiction by entering the residential premises of the appellant. The appellant stays in a joint family along with his parents and his younger brother Mr. Kevin Rajendra Shah. It was during the course of these survey proceedings that a laptop, Apple Mac Book belonging to the said Mr. Kevin Rajendra Shah was impounded from the possession of Mr. Kevin Rajendra Shah. The appellant's AR has argued that 1'vlr. Kevin Rajendra Shah is in no wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect to addition made on the basis of mere mention of expenses: ......Now, turning to the facts of the cases in hand, private diaries may have been most regularly maintained, it may have been exhibiting record of the factual facts, contemporaneously made but they were never maintained for the purposes of the Income-tax Act to draw the source of income or for the computation of total income to offer income calculated there from for the purposes of taxation. Such books or diaries can hardly be designed or accepted as books of account for the purposes of Explanation 5 of section 271(1)(c) of the Act,... What can be said to be actual and real books of accounts is considered by the Honorable Supreme Court and referred to by the Honorable Bombay high Court in Sheratons Apparel Judgment as under: Further, the Supreme Court in the judgment delivered in the case of Ishnwar Dass Jain v. SohanLal, AIR 2000 SC 426; [2000] 1 SCC 434 has observed as under (headnote) Under section 34 sanctity is attached in the law of evidence to books of account if the books are indeed 'account books', i.e., in original if they show, on their face, that they are kept in the 'regular course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Judgement of Privy Council quoted by the Honorable Kerala High Court in St_ Theresa's case throws much needed light on the assessment on best of judgment and this applies to appellant before me. The AO has disregarded appellant's own books of accounts which are regularly maintained and appellant is also regularly assessed to tax. It is also seen that the AO has just taken the print-outs from the laptop Mac-book of one Mr. Kevin Rajendra Shah, the younger brother of the appellant who has nothing to do with the business activities of the appellant and has proceeded to make an addition to the appellant's returned income as Unexplained Expenditure u/s 69 of the Act. The income based on such guess work has no place in law and the same requires to be deleted. In view of the above I delete the addition of ₹ 61,58 000/-. After having gone through the aforementioned order and hearing the parties at length, we find that Ld. CIT(A) after correctly appreciating the facts of the present case had concluded that AO had disregarded assessee s own books of accounts which were regularly maintained and assessee is also regularly assessed to tax. As per the facts of the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile preparing written submission had realized that Ld. CIT(A) had erred in confirming addition of ₹ 65 lakhs which inadvertently went unnoticed due to multiple additions and deletions. It was further submitted that the present appeal had been filed during the pendency of the appeal filed by the AO wherein the order of the same CIT(A) had already been challenged, thus no prejudice would be caused to the revenue in case the delay is condoned, whereas a great prejudice would be caused to the assessee in case delay is not condoned. 21. On the other hand, Ld. DR requested for dismissal of the said application. 22. We have heard the counsels for both the parties on the application for seeking condonation of delay and while taking into consideration the contents of application filed by the assessee, supporting affidavit, whereby the assessee has mentioned the reasons in detail for not filing the appeal within limitation, therefore keeping in view the reasons mentioned in the affidavit and following the principles laid down by Hon ble Supreme Court in case of Land Acquisition Collector Vrs. MstKitzi, AIR 1987 S.C. 1353/(1987) 167 ITR 471 (SC), we condone the delay of 907 days ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained expenditure u/s 69C of the A. Y. 2010-11 i.e. the year under assessment. It was submitted that the AO had made additions on a loose paper without corroborating the same. This loose paper according to the assessee is not in the handwriting of the assessee and does not bear any signature. In this respect, on a specific question by the Survey Officer (question no. 69), the assessee had categorically denied having incurred any such expenditure and this being a dumb document, no data recorded therein has been corroborated by the assessing officer. The Ld. AR also stressed that the AO had made the above additions based on assumptions and presumptions. The AO justified in his order that It may be stated here that since there is no date mentioned on this document as to which financial year it relates, for the taxation purpose, the same is taken as unexplained expenditure u/s 69C for the A. Y. 2010-11 i.e. the year under assessment. It was submitted that from the above findings of AO, it shows that the AO had adopted the method of pick and choose any particular assessment year for making the additions. Since the additions are on account of unexplained expenditure und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has either earned an income or made an investment which has not been recorded in his regular books of account or that his case is covered under any of the deeming provisions contained in sections 68, 69, 69A to 69D of the Act. However, additions cannot be sustained merely on the basis of rough noting made on few loose sheets of papers unless the AO brings on record some independent and corroborative materials to prove irrefutably that the said noting reveal either unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. As discussed above, in the instant case, assessments for the impugned years have been completed u/s 153A of the Act which relates to assessment in case of search or requisition. The prerequisite condition for application of Sec. 153A of the Act is a search conducted under section 132 of the Act or any requisition made under section 132A of the Act to unearth hidden income or property. Thus, the very purpose/ essence of search conduced u/s 132 of the Act is to unearth hidden income or property or get hold of books of account or documents which has not been or will not be otherwise produced by the assessee in regular course on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a document would not tantamount to a proof of all the contents or facts stated in the documents, if the truth of the facts stated in a document is in issue, mere proof of the handwriting and execution of the document would not furnish evidence of the truth of the fact or contents of the document. The truth or otherwise of the fact or contents so stated would have to be proved by admissible evidence i.e., by the evidence of those persons who can vouchsafe for the truth of the facts in Issue. 6.5 Further, the Hon'ble Supreme Court in the case of Mohd. Yusuf Anr. Vs. D. Anr. AIR 1968 Bom. 112 has observed that the evidence of the contents contained in document is hearsay evidence unless the writer thereof is examined before the Court. The Hon'ble Court, therefore, held that the attempt to prove the contents of the document by proving the signatures of the handwriting of the author thereof is set at naught, the well-recognised rule that hearsay evidence cannot be admitted. 6.6 If we consider the said piece of paper seized during search in light of the definition of the word document as given in the Indian Evidence Act and General Clauses Act and the truthfulness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has made the addition of ₹ 4,93, 900. We entirely agree with the assessee's counsel that under section 132(4A) there is no presumption that if an unsigned paper or document is found during the course of search it has to be presumed that it is signed. We find in section 132(4A)(ii) that if there is signature on any document or account books recovered during the course of search then it has to be presumed that the signature and every other part of such account books and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by or to be in the handwriting of any particular person are in that person's handwriting. Needless to say that in law no document or paper can have any validity or enforceability until the same bears signature of concerned parties. Signature is the soul and any paper, notice or document is a body. Body without a soul is of no use, value or consequence. What is the significance and importance of a signature on any document can be found in the judgment of Hon'ble Calcutta High Court in the case of B.K Gooyee v. CIT [1966] 62 ITR 109. In that case the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, thus a dumb document and as the orders of the authorities below would show they have merely added the total of the right side of the slip without supplying the figures any language to indicate their meaning. In the case of such a dumb document, the provisions of Section 132(4A) do not permit any one to presume that the total of the figures of right side of the slip represents the assessee's income. The presumption at the most is attracted to the fig ures and a further presumption that they represent the income of the assessee Is not permissible under Section 132(4A). When a dumb document, like the present slip, is recovered and the revenue wants to make use of it, it is the duty of the revenue to collect necessary evidence which may provide an acceptable narration to the various entries. The evidence collected should be such that any reasonable man would accept, the hypothesis advanced by the revenue that the figures written on the right side of the slip represent incomes earned by the assessee. It was conceded by the learned Departmental Representative that no such evidence has been brought on record.......Therefore the additions cannot be sustained and they are hereby de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nduced u/s 132 of the Act is to unearth hidden income or property or get hold of books of account or documents which has not been or will not be otherwise produced by the assessee in regular course on issue of summons or notice. In the assessee's case, as stated above, the purported search action did not lead to discovery of any unaccounted money, bullion, jewellery or other valuable article or thing. Further, no books of account revealing any undisclosed transactions of the assessee were found during the course of search. The entire assessment order revolves around scribbling in loose sheet of paper seized from the premises. In the course of search action, said rough loose sheet of paper was seized which cannot be termed as 'documents' having any evidentiary value within the meaning of section 132 or section 132A of the Act. The Co-ordinate bench of Delhi Tribunal in the case of Atul Kumar Jain Vs. DCIT reported in (1999) 64 TTJ (Del) 786 had an occasion to examine the meaning word document and its evidentiary value for the purposes of sections 132, 132A and 132(4A) of the Act. At Para 6.4 to 6.6 of the order, the Delhi Tribunal observed as under:- 6.4 We find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof are not capable of describing the transactions the way the AO has deciphered them without support of corroborative evidence of the parties attributed to the alleged transaction. The said paper, therefore, does not come within the compass of the definition of the word document to be used as any evidence. The paper seized, therefore, has no evidentiary value and accordingly the same cannot form the basis for assessing the undisclosed Income. In light of the aforesaid judgment, we are of the view that the impugned loose sheet of paper cannot come within the ambit of definition of the word document to be used as evidence and the same cannot form the basis for assessing the undisclosed income of the assessee. Admittedly, the said loose paper is not in the form of pronotes or duly executed documents or books of account or certificates or money receipts which can prove conclusively the factum of any undisclosed income earned by the assessee or any unaccounted investments or expenditure made by him. Additions cannot be made simply on the basis of rough scribbling made by some unidentified person. We have also considered the order in the case of Pioneer Publicity Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X
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