TMI Blog2022 (4) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s findings deleting Section 40A(3) disallowance. Undisclosed income addition based on the assessee's search statement - AO had only made Section 40A(3) disallowance only than un-disclosed income addition based on the assessee's authorised person's search statement. That being the case, we are afraid that the Revenue's hands are indeed tied at this stage as it would not be allowed to make any addition once the AO has invoked Section 40A(3) only. Case law CIT Vs. Shapoorji Pallonji Mistry [ 1962 (2) TMI 12 - SUPREME COURT] as well as CIT Vs. Union Tyres [ 1999 (9) TMI 81 - DELHI HIGH COURT] hold that such an addition would not be allowed to be made even by way of enhancement in first appellate proceedings despite the fact that the CIT(A) is vested with his jurisdiction co-terminus with the AO. Their lordships make it clear that Section 251(1) enhancement jurisdiction does not extend to a new source of income. We therefore accept assessee's arguments and reject Revenue's stand regarding the alleged undisclosed income addition which was never added in both assessment orders since the Assessing Officer had merely invoked Section 40A(3) disallowance. We th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) has erred in law and on facts in deleting Section 40A(3) disallowance of ₹ 10 crores in AY. 2011-12 and ₹ 4 crores in AY. 2012-13; respectively. The CIT(A)'s identical detailed discussion in issue reads as follows: 5.0 Addition on account of unexplained expenditure/disallowance u/s. 40A(3) and declarations made u/s. 132(4), but not admitted in return of income - ₹ 10,00,00,000/-: 5.1 During the course of assessment proceedings, conducted in this case on 26-03-2012, the AO observed that certain valuables were found along with certain incriminating information. The information found and seized/impounded are shown as under; (a) Pages 1 to 113 of Annexure A/RIPPL/01 to the Panchnama dated 26-03-12 drawn at plot no. 88, Road No. 72, Prashasan Nagar, Jubilee Hills, Hyderabad-500 033. (b) Two external hard disks Annexure A/RIPPL/02 03, dated 26-03-12 at plot no. 88, Road No. 72, Prashasan Nagar, Jubilee Hills, Hyderabad- 500 033. (c) Pages 1 to 23 of Annexure A/RIPPL/04, dated 26-03-12 drawn at plot no. 88, Road No. 72, Prashasan Nagar, Jubilee Hills, Hyderabad-500 033. (d) Annex. A/Ratna/off/03, impounded on 26-03-12, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o believe after long gap of time that disclosure made was without such examination. - The assessee failed to prove the existence of conditions so as to come under the purview of Rule 6DD, by not proving the fact that no banks were existing at work sites and all the payees are located/residing at work sites, with no such information brought on record. - The vouchers which were not available at the time of search, were prepared with each of such amounts below ₹ 20,000/- which is nothing but after thought on part of the assessee. - The assessee, prevented the department/Assessing Authority, from further investigation, by making a declaration u/s. 132(4), as such retraction after a long gap is not acceptable. In this regard the AO relied on the judicial decision. Accordingly, the AO treated the undisclosed amount of ₹ 10 crores, as declared u/s. 132(4) during the course of search proceedings, as undisclosed income of the appellant company for the year under reference and computed the total income at ₹ 14,73,61,155/-. 5.2 The appellant objected for the addition of ₹ 10,00,00,000/- and filed his written submissions and the main contents of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company has also under taken works on back to back basis wherein the work is given sub-contract with a low margin of profits. The details are as under for the subject assessment year: Direct 6332.20 953.38 15.06 323.16 5.10 Sub- contract 2407.38 468.68 19.47 2.02 Executed by B2B contractors 35694.06 0.00 0.00 0.00 Gross turnover 444433.64 1422.05 3.20 371.69 0.84 As seen from the above table the profit before depreciation in respect of works executed both direct and sub-contract is at 17.26% and net profit is about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was quantified at ₹ 68,87,500/- and offered as additional income for A.Y. 2011-12 and A.Y. 2012-13, based on the entries found in seized/impounded material/books. It was also a fact that no books/vouchers were produced by the assessee at the time of search and production of the same at the stage of assessment was certainly an afterthought. The payment of extortion money and non-maintenance of vouchers and books as evidenced at the time of survey/search in this case prove clearly that books are not reliable and for the same reasons deemed to have been rejected, though it is a fact that Audit Reports were shown to be furnished and returned incomes shown to have been filed on such basis. 5.3.2 The other factor that assessee relied upon for admitting undisclosed income at the time of search and subsequent withdrawal/retraction, was the applicability of provisions of Sec. 40A(3) rwr 6DD, in allowing or disallowing the cash payments exceeding ₹ 20,000/-. In this regard, it may be relevant to refer to the situation based on which such declaration was made i.e., books of account/vouchers are not readily available and the assessee was not sure whether the cash payments m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived the cash payment. It will be clear from the provisions of s. 40A(3) and r. 6DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions. 5.3.3 This is very crucial factor in this regard for which the assessee could not establish that Rule 6DD clearly applicable to him. It is also a fact that the amounts assessee tried to explain through the cash payments/transfers, are mainly related to the main contract executed and apparently there is no such explanation on the amounts involved in back to back contracts, which are running in to hundreds of crores of rupees. The amounts of back to back contracts are quantified at ₹ 273.62 cr. for A.Y. 2009-10, ₹ 638.90 cr. for A.Y. 2010-11, ₹ 356.94 cr. for A.Y. 2011-12 and ₹ 74.51 Cr. for A.Y. 2012-13. There is no such explanation for the amounts involved in back to back contracts, where the provisions of Sec. 40A(3) are equally applicable. Further, it is also a fact that all the amounts that are shown as expenses are related to main contracts, with major expenses such as labour charges were paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 2011-12 2012-13 2012-13 Total Deposit 0 0 0 100 100 Advance/Creditors 105 415 110 367 996 Staff Advance 58 41 0 41 140 Labour Charges 0 984 1004 813 2801 Other than Labour Charges 22 126 140 288 185 1565 1114 1461 4325 As could be seen from the chart, the amount of ₹ 28.01 crores represent the labour charges paid in cash for two years, with ₹ 10.00 cr. for A.Y. 2011-12 and ₹ 18.01 cr. durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 crore representing investments in Gold/Jewellery/and silver articles for ₹ 1 crore and for other investments an amount of ₹ 1 crore the details of income and such investments shall be submitted separately. Thus the total additional income admitted for 2011-12 and 2012-13 is ₹ 26 crore in the hands of the Company and my individual hands. 5.4.1 Having accepted and confirmed the disclosures at two different times, on the same set of facts that to reconfirmed through affidavit, there was no reasons for the assessee too retract the same and there Is no material change between the date of search and furnishing return of income, for doing so. In this regard, It may be relevant to mention that neither the affidavit nor the declaration was Withdrawn, In Writing, except the expression through which the incomes disclosed u/s. 132(4) were not admitted in return of income. In this Context, It may be relevant to refer to the judicial decisions on the issue of the validity and reliability of an affidavit. In it's judgment, in the case of Sri Krishna Vs. err, Hon'ble High Court of Allahabad, held that It is neither a rule of prudence nor a rule of law that the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith valid grounds and with the disclosed monies confirmed through affidavit, the amounts of ₹ 10,00,00,000/- as admitted as undisclosed income during the course of search proceedings, is held to be established, which means the unexplained incomes are not explained through books. Hence, the addition of ₹ 10,00,00,000/- made in assessment order is held to be justified and confirmed. Thus, the grounds related to this issue are treated as Dismissed . 5. Both parties reiterate their respective stands before us. We note from a perusal of the assessment findings that although the Assessing Officer had taken into consideration the assessee's alleged search statement making the corresponding disclosures (supra), he only proceeded to invoke Section 40A(3) business expenditure disallowance paid at various project sites in cash mode. We make it clear that neither of the assessment orders before us has made any undisclosed income addition despite the fact that there has been a long discussion on identical lines to this effect. Learned CIT-DR could hardly rebut the fact that Section 40A(1) itself makes it clear that this statutory provision carries overriding effect on all ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s authorised person's search statement. That being the case, we are afraid that the Revenue's hands are indeed tied at this stage as it would not be allowed to make any addition once the Assessing Officer has invoked Section 40A(3) only. Case law CIT Vs. Shapoorji Pallonji Mistry [ (1962) 44 ITR 891] (SC) as well as CIT Vs. Union Tyres [ (1999) 240 ITR 556] (Del) hold that such an addition would not be allowed to be made even by way of enhancement in first appellate proceedings despite the fact that the CIT(A) is vested with his jurisdiction co-terminus with the Assessing Officer. Their lordships make it clear that Section 251(1) enhancement jurisdiction does not extend to a new source of income. We therefore accept assessee's arguments and reject Revenue's stand regarding the alleged undisclosed income addition which was never added in both assessment orders since the Assessing Officer had merely invoked Section 40A(3) disallowance. We therefore accept the assessee's pleadings to this limited extent in its appeals ITA Nos. 730 731/Hyd/2016. The Revenue's cross-objections Nos. 8 9/Hyd/2021 seeking restoration of Section 40A(3) disallowances fail in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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