TMI Blog2020 (11) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue has confirmed the decision of the Hon ble High Court of Delhi which held that in the absence of any exempt income disallowance U/s.14A of the Act of any amount was not permissible. The Hon ble Supreme Court while arriving at a conclusion has followed its earlier decision in the case of Cheminvest Limited vs. CIT [ 2015 (9) TMI 238 - DELHI HIGH COURT] , where a similar view has been expressed by the court. In this case, the assessee has filed all evidences to prove the fact that no exempt income is earned for the year. The assessee has also filed all evidences to prove that its own fund being share capital and reserves and surplus is over and above amount of investments. No disallowances could be made for any expenditure including interest expenses. Therefore, we are of the considered view that the Ld.CIT(A) has rightly deleted additions expenditure including interest expenses. Therefore, we are of the considered view that the Ld.CIT(A) has rightly deleted additions - Decided in favour of assessee. Disallowance of marketing expenditure and business promotion expenses - AO has disallowed 100% of marketing expenditure incurred in cash and 100% of marketing expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id documents to make additions. In this case, the AO has not made any effort to verify the entries recorded in the scribbling pad by making further enquiries and cross examining the alleged persons or suppliers named in the said incriminating document - on perusal of incriminating documents found during the course of search, we find that nothing was emanating regarding name and address of persons from whom said amount was received and the nature of expenditure for which said amount was paid. In absence of any effort from the AO by way of further enquiries, merely on the basis of a dumb paper coupled with statement recorded during the course of search, additions made towards undisclosed income cannot be sustained, more particularly when said statement has no longer in operation. We find that when a statement was recorded from employee of assessee which was further vetted by the Managing Director, then the earlier statement given by the employees are merged with the subsequent statement of a Managing Director, because the person in charge of the affairs of the company is always Managing Director, who is having knowledge of affairs of the company. Therefore even though the employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - I.T.A. Nos. 2703, 2704, 2705/Chny/2019 And I.T.A. Nos.2194, 2195 And 2993/Chny/2019 - - - Dated:- 4-11-2020 - Shri Duvvuru RL Reddy, Judicial Member And Shri G. Manjunatha, Accountant Member For the Assessee : Shri D. Anand, Advocate For the Revenue : Shri AR.V. Sreenivasan, Addl.CIT ORDER PER BENCH: This bunch of 6 appeals, 3 each from Revenue and 3 each from assessee are directed against separate, but identical orders of the CIT(A) -18, Chennai dated 18.07.2019 pertaining to the assessment years 2014-15, 2015-16 and 2016-17. Similarly, the assessee has filed an appeal against the order of the CIT(A)-19, Chennai dated 23.09.2019 for the assessment year 2017-18. Since, the facts and issues involved in these appeals are identical, for the sake of convenience these appeals are heard together and are being disposed of by this consolidated order. 2. The Revenue has more or less raised common grounds of appeal for all assessment years. Therefore, for the sake or brevity, grounds of appeal filed for the AY 2014-15 are reproduced as under:- 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds/arguments at the time of hearing. 4. The brief facts of the case are that the assessee company is engaged in the business of manufacturing and sales of distillery products. The assessee company manufactured and sold goods only to Tamil Nadu State Marketing Corporation. The assessee has filed its return of income U/s.139 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) admitting total income of ₹ 16,09,06,810/- on 16.09.2015 and the same was processed U/s.143(1) of the Act. A search and seizure action U/s.132 of the Act was carried out in the business premises of the assessee company on 09.05.2016. During the course of search, certain incriminating materials were found and seized vide annexure ANN/VJ/SNJ/B D/S-1 in the procession of Smt. Banusree who was working as cashier in the assessee company, which contain the details of date wise unaccounted cash receipts and payments for the period 03.07.2014 to 07.05.2016. Further, during the course of search proceedings at the business premises of the assessee company, a cash of ₹ 3,93,57,669/- was found in the chamber of Shri P.Srikant, Purchase Manager of the assessee company and the same was inventori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Shri S.N. Jayamurugan had filed another affidavit on 27.02.2017 (after nine and half months) before the DDIT(Inv), Unit -1(1), Chennai and denied to the facts as admitted in oath taken U/s.132(4) of the Act dated 10.05.2016 and earlier affidavit dated 29.06.2016. He once again reiterated that statement recording during the search at odd hours should not be considered as evidence, because the same was recorded under mental pressure and disturbed state of mind, stress and duress. 6. Consequent to the search, the case has been selected for scrutiny and accordingly notices U/s.153A of the Act dated 16.08.2017 was issued and served on the assessee. In response, the assessee company has filed its return of income on 14-09-2017 admitting total income of ₹ 29,44,77,850/-. The case was selected for scrutiny and during the course of assessment proceedings, the AO vide office notice dated 23.05.2018 issued u/s.142(1) requested the assessee to explain as to why the entire unaccounted cash receipt of ₹ 31.59 Crores should not be brought to tax as undisclosed and unaccounted income for the respective assessment years. In response, the assessee vide letter dated 08.06.2018 has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tents recorded in the said document was handwritten by Smt. Banushree and the same was also identified by her. Further, the oath was taken U/s.132(4) of the Act, by Smt. Banusree on 10.05.2016 in which she had admitted that she was handling unaccounted cash as per directions of Shri Jayamurugan, Managing Director and Shri Shrikanth, Purchase Manager. From the above, it is very clear that the scribbling notebook found during the course of search was belonging to the assessee and contents recorded therein are true and correct and was accepted by the assessee as it is unrecorded transactions outside the books of accounts. The AO further noted that the assessee s contention that the entries in the scribbling pad does not supported with any bills or vouchers is not correct and not acceptable because unaccounted transactions are never supported by bills and vouchers and that is why these are called as unaccounted transactions. The Ld.AO on the basis of evidences collected during the course of search coupled with sworn statement recorded from the parties including Shri S.N. Jayamurugan, Managing Director of the assessee company came to the conclusion that the facts gathered during the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no exempt income earned for the year, then disallowance contemplated U/s.14A cannot be made. The Ld.CIT(A) has also allowed partial relief in respect of disallowance of marketing expenses by following the ITAT, Chennai Bench decision in assessee s own case for the assessment years 2010-11 to 2013-14 in ITA Nos.300 to 303/Mds/2016 vide order dated 27.05.2016 and restricted the disallowance to 10% of marketing expenses incurred in cash. In so far as expenditure incurred by cheque, the AO has specifically invoked Section 40(a)(ia) of the Act for non-deduction of tax at source on such payments and hence the findings of the Tribunal for earlier years will not come to the rescue of the assessee as regards disallowance made by invoking the provisions of Section 40a(ia) of the Act, and accordingly sustained addition made towards marketing expenses by invoking provisions of Section 40a(ia) of the Act for non-deduction of tax at source on such payments. As regards, additions made towards unaccounted cash receipts on the basis of the alleged scribbling pad, the Ld.CIT(A) for the total reasons recorded in the assessment order has affirmed the findings of the Ld.AO on the ground that the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the decision of the Hon ble Bombay High Court in the case of Godrej Boyce Mfg.Co. Ltd. vs. DCIT [2010] 194 taxman 203 (Bom) computed disallowance by invoking provisions of Rule 8D(2) of the IT Rules 1962. The Ld.CIT(A) on appeal by the assessee had deleted the addition made by the AO by following the decision of the Hon ble Supreme Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd., supra, on the ground that when there is no exempt income earned for the year, the question of disallowance of expenditure incurred in relation to said exempt income does not arise. 10.2 The Ld.DR submitted that the Ld.CIT(A) has erred in deleting the additions made by the AO towards disallowance of expenditure incurred in relation to exempt income U/s.14A r.w.r.8D(2) of the Rules, without appreciating the fact that the assessee has been borrowing interest bearing funds for its working capital needs, but at the same time made investments which will generate exempt income from tax and accordingly, necessary expenditure relatable to said exempt income needs to be disallowed under the provisions of Section 14A of the Act. 10.3 The Ld.AR for the assessee, on the other hand strongly support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led all evidences to prove that its own fund being share capital and reserves and surplus is over and above amount of investments. Under these facts, no disallowances could be made for any expenditure including interest expenses. Therefore, we are of the considered view that the Ld.CIT(A) has rightly deleted additions made towards disallowance of expenditure U/s.14A r.w.Rule 8D of the Rules. Hence, we are inclined to uphold the findings of the CIT(A) and reject the ground taken by the Revenue for all assessment years. 11. The next issue that came up for our consideration from Ground No.3 of Revenue appeals for all assessment years and Ground No.5 of assessee appeal for assessment year 2017-18 is disallowance of marketing expenditure and business promotion expenses. 11.1 The AO has disallowed 100% of marketing expenditure incurred in cash and 100% of marketing expenditure incurred in cheque, but payment made without deduction of tax at source on the ground that the assessee has incurred huge marketing expenditure in cash but failed to file supporting bills and vouchers to justify said expenditure to establish that it was incurred wholly and exclusively for the purpose of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els, the genuineness of such expenditure cannot be doubted merely for the reason that no supporting bills / vouchers are submitted. As regards expenditure incurred in cash, the Tribunal further noted that wherever expenditure incurred only by cash, then there are chances of inflating such expenditure, therefore directed the AO to restrict the disallowance to the extent of 10% of cash expenditure. In these years, the Ld.CIT(A) has followed the order of the Tribunal and directed the AO to restrict the disallowance to the extent of 10% of cash expenditure incurred under the head marketing and sales promotion expenses. We do not find any error in the findings of the Ld.CIT(IA) as regards expenditure incurred in cash and hence we are inclined to uphold the findings of the Ld.CIT(A) and reject the ground taken by the Revenue. As regards the claim of the assessee that for the assessment year 2017-18, the Ld.AO has disallowed a sum of ₹ 28,18,994/- even though said expenditure has been incurred in cheque but for not furnishing supporting bills and vouchers, we find that the Tribunal has given categorical finding for earlier assessment years that once expenditure is incurred in cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous vendors by way of inflation of expenditures. The seized notepad was shown to him and was asked to explain the contents of the same. After going through the seized book, he admitted that during the period 03.07.2014 to 07.05.2016, the assessee company has generated unaccounted cash to the tune of ₹ 31.51 Crores and further agreed to offer the same for taxation as its undisclosed income of the company for the relevant assessment years. Subsequently, Shri S.N. Jayamurugan, the Managing Director had filed an affidavit dated 29.06.2016 (after one and half month of search) before the DDIT(Inv) and in which he had denied receipt of cash as admitted in the statement recorded U/s.132 of the Act on 10.05.2016. However, he further stated in order to buy peace from the Department and to settle the matter voluntarily offered additional income of ₹ 31 Crores for the assessment years 2015-16 to 2017-18. In the said affidavit, he has denied having received any unaccounted cash from any of the supplier and further stated that the search party had recorded sworn statement at the odd hours of the late night from him which was given under mental pressure and disturbed state of mind, st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said documents was written at the time of search and at the instance of the Search Party to create an evidence for confession taken towards undisclosed income which is evident from the fact that if we go through the handwriting and the manner in which the said cash book was written had clearly indicates that the same was written on the single day. 12.3 The Ld.AR further submitted that the assessee has right from the beginning claimed that the document found during the course of search was neither belongs to it nor the contents of the document does not show any light on undisclosed income of the assessee. In fact, the assessee has requested the AO to send the document for forensic examination to ascertain the correctness of the handwriting and correctness of entries therein. But the AO as well as the CIT(A) have refused to send the document for forensic examination. From the above, it is very clear that the documents found at the time of search and the basis for addition is only a dumb document which was created to support the confessional statement taken during the course of search. The Ld.AR for the assessee further submitted that when cash book is maintained whether it is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stand that the entries recorded in seized document reflects unrecorded cash receipts from various vendors and suppliers. The Ld.AR further submitted that although the AO has taken support from the fact that huge cash balance was recovered during the course of search and which was not tallied with book balance, but fact remains that the assessee has filed necessary evidences to prove that the cash balance found during the course of search was tallied with the book balance as on the date of search in various group companies and the same has been supported by cash book and Wealth Tax return filed for the relevant assessment years. The AO as well as the CIT(A) has ignored all the evidences filed by the assessee and made additions only on the basis of the statement recorded during the course of search U/s.132(4) of the Act, and further taking note of seized document in the form of scribbling pad without appreciating the fact that the said document is a dumb document which cannot be considered as credible evidence to make additions. In this regard, he relied upon following case laws. 1) CIT vs. Shri Praveen Juneja, (2017) 99 CCH 0115 (Del HC) 2) ACIT vs. Layer Exports P. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early and beyond any doubt. 12.6. The DR further submitted that although the AR for the assessee taken an argument that cash withdrawn from bank of ₹ 6.99 crore was also recorded in scribbling pad but failed to reconcile and explain during assessment proceedings and even before the ITAT how and when withdrawals of cash from the bank was not demonstrated cogently, linking each withdrawal from the banks with the entry in the seized notepad. Thus, the crucial facts were still not laid on the table. In so far as the arguments of the AR for referring the note book and handwriting for forensic examination, it was well established principles of law that without establishing a prima facie case of such alleged manipulation or doctrine of entries nor identifying the investigating officer who had allegedly got this entries written, this allegation and request is preposterous and does not survive. This argument was squarely rejected by the CIT(A) for its shallowness and hollowness vide his orders under Para 20.3. At the best, or the worst as the case may be, this allegation has been raised with an ulterior motive of side tracking the contents and import of the seized notepad. Moreo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of the assessee company made during the course of search and also at the time of post-search investigation where once again he has admitted the fact that the entries contained in scribbling pad represents unaccounted cash receipts from various vendors and suppliers. Although, the Managing Director of the company has filed subsequent affidavit retracting his earlier statements, but such statement has been filed after a gap of nine and half months that too without any supporting evidences to justify his claim that the earlier statement was given under duress, undue inference and stress. Therefore, there is no merit in the arguments taken by the Ld.AR for the assessee that the statement was recorded at the time of search cannot be considered as credible evidence to make addition. The Ld.DR referring to the findings of the Ld.CIT(A) submitted that the Ld.CIT(A) has narrated all arguments of the assessee in light of various judicial precedents and held that statement recorded during the course of search is an important evidence which can be relied upon to make additions unless the assessee rebut such statement with necessary evidences. The Ld.DR has also distinguished the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosed income on the basis of the material found during the course of search. But subsequently the said statement has been retracted with written affidavit on the ground that the initial statement was recorded at odd hours of the late night which was given under mental pressure and disturbed state of mind and duress. The assessee further stated that although the Department has found cash which was not matched to book balance, but subsequently the assessee has filed a reconciliation statement along with necessary evidences to prove that cash balance found during the course of search was fully recorded in the books of accounts and also duly recorded in Wealth Tax return for the relevant assessment year. No doubt, statements recorded under various provisions of the Income Tax Act are a vital tool in the hands of the Income Tax Authorities in their thrust to establish certain factual and legal positions. Further, admission is an extremely important piece of evidence and it is admissible against its makers, but the fact remains is that the statement recorded during the course of search or survey is important piece of evidence if it is supported by corroborative evidence. In case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of the assessee which was recorded in the books of accounts for the relevant period as well as some other cash entries of receipts and payments. According to the AO, the assessee has systematically recorded cash receipts from various vendors and payment of said cash to various parties for expenditure. The said finding has been arrived at on the basis of admission of the person who wrote the alleged undisclosed cash book and which was further supported by the admission of one Shri P. Srikanth, Purchase Manager and Shri S.N. Jayamurugan, Managing Director of the assessee company were in the initial statements, they have admitted to have received unaccounted cash from various parties and the same has been deployed for unaccounted expenditure. However, fact remains is that the earlier statement has been subsequently retracted by the parties and stated that the same has been recorded at odd hours in a confused state of mind and coercion. Therefore, it does not carry any evidentiary value. The assessee had also made an allegation that the said document was written on the same day at the direction of the Search Party, where they have forced the assessee to write cash book t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of expenditure for which cash has been paid and the persons to whom said cash has been paid, it is very difficult to accept the contents of the scribbling pad as undisclosed income of the assessee outside the books of accounts. Moreover, it is highly incorrect to say that a person maintains parallel books of accounts to record unaccounted transactions would also include cash withdrawn from regular bank accounts and record the same along with undisclosed books of accounts. From the above, it is abundantly clear that the impugned scribbling pad is part of the purported statement and declaration obtained by the Search Team to support the declaration taken towards undisclosed income for the period covered under search. It is a well settled principle of law that when dumb document like the present scribbling pad are recovered during the course of search and the Revenue wants to make use of it, the onus is on the Revenue to collect cogent evidences to corroborate the noting in alleged incriminating documents. In this case, the Revenue has failed to bring on record any cogent evidences to prove conclusively that the noting in the seized papers refer the unaccounted cash receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned additions made by the AO on the basis of incriminating material being scribbling pad named Sharp NotePad-4 is an inadequate material or rather no material at all and as such deserves to be ignored. Further, it is a settled position of law that statement recorded U/s.132(4) of the Act is an important piece of evidence but reliability depends upon the facts of the case and particularly surrounding circumstances and in this case, the lower authorities reached to the conclusion on the basis of assumption resulting into fastening on the liability of the assessee on the basis of inadequate material coupled with statement recorded during the course of search. No doubt, statement of oath recorded U/s.132(4) of the Act is a piece of evidence, when there is incriminating material supporting the said admission. In the absence of any corroborative evidence, merely on the basis of admission in statement recorded U/s.132(4) of the Act, no liability can be fastened on the assessee. The AO has not brought on record any material and reasons for rejection of assessee s contention by which the assessee has retracted from his admission. None of the authorities gave any reason as to why t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trong cannot take place of evidences which can be used against the assessee, when particularly the assessee has retracted his statement along with sworn affidavit and explained the reasons for giving admission at the time of search. This principle is supported by the decision of Hon ble Supreme Court in the case of Umacharan Shaw Bros vs. CIT(1959) 37 ITR 271(SC). Further, the assessee has brought on record various reasons to prove that the alleged scribbling pad is part of purported statement and declaration obtained by the search team during the course of search, but it is not a cash book maintained by the assessee to record unaccounted cash received from various vendors and parties for inflation of expenditure to make various payments for expenditure. Had it been the case of the AO that the alleged scribbling pad and its contents was tested by cross examining the parties as stated by the AO in his assessment order, then obviously it would give raise to an occasion to the AO to rely on said documents to make additions. In this case, the AO has not made any effort to verify the entries recorded in the scribbling pad by making further enquiries and cross examining the alleged per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration, the assessee had claimed deduction U/s.32AC of the Act amounting to ₹ 4,82,36,630/- on new plant and machinery installed at New Andhra breweries project unit. The assessee has set-up a new unit for manufacturing purpose and acquired plant and machinery worth ₹ 32,15,77,537/-. Further, the plant and machinery has been installed at the site for which necessary report from the service provider for installation of plant and machinery has been obtained. The assessee has not capitalized the total amount incurred for setting up the new breweries project, because the total plant was not ready for use. The AO has disallowed deduction claimed U/s.32AC of the Act, on the ground that the assessee has not capitalized the amount spent for establishment of new manufacturing facility at Andhra because the same was not ready for use. The AO has also taken support from the fact that the assessee has shown the amount incurred for setting up new plant and machinery under the head capital work-in-progress pending capitalization. 13.1 The Ld.AR for the assessee submitted that the Ld.AO as well as the Ld.CIT(A) were erred in disallowing deduction claimed towards inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The word install is defined in English language as ready for us. In this case, the cost of eligible machinery was clearly shown as work in progress, implying that the same is not yet installed. Thus, the cumulative clause acquired and installed is not completely fulfilled. The AO as well as the Ld.CIT(A) having considered relevant facts rightly disallowed the claim of deduction u/s.32AC of the Act. In this regard, he relied upon the decision of Hon ble Bombay High Court in the case of Wittle Anderson vs. CIT [1971] 79 ITR 630, where the court laid down that when the machinery was kept in working condition and ready for use, the machinery was entitled for depreciation. Similarly, he relied upon the decision of Hon ble Madras High Court in the case of CIT vs. Maps Tours and Travels [2008] TMI 12123 Madras and argued that the High Court has request to grant depreciation on cars purchased but not registered for flying on the road. 13.3 We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The provisions of Section 32AC of the Act, deals with a situation where an assessee being a company, engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , obviously unless the complete plant is ready for use, the assessee could not put to use the particular plant and machinery for the purpose of manufacturing. In this case, the assessee has explained the process of manufacturing brewery as per which it is a continuous process plant where various stages of processing needs to be carried out for which different plant and machineries are required to be installed including malting, kilning, mailing, mashing, boiling of wort hops and fermentation and all these process requires different stages of setting up and construction. In so far as plant and machinery, the assessee has acquired and installed the plant and machinery which is above the prescribed limit and such plant and machinery has been installed within the prescribed date provided U/s.32AC of the Act. Merely for the reason that the plant is not ready for use, the amount spent for acquiring and installing plant and machinery, the benefit of additional allowance provided under said section cannot be denied more particularly when the provision is a beneficial provision which needs to be liberally considered. In this case, on perusal of facts, the assessee has fulfilled all terms ..... X X X X Extracts X X X X X X X X Extracts X X X X
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