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Issues Involved:
1. Addition of Rs. 20,35,000 on account of alleged unexplained security deposits. 2. Addition of Rs. 3,06,000 on account of inflated salary. Summary: Issue 1: Addition of Rs. 20,35,000 on account of alleged unexplained security deposits The assessee, a partnership firm engaged in liquor trading, was subjected to a search and seizure operation u/s 132 of the Act on 6th March 1997. The AO determined an undisclosed income of Rs. 23,41,000, including Rs. 20,35,000 for alleged unexplained security deposits from 170 employees. The CIT(A) reduced this addition to Rs. 5,00,000. The Tribunal restored the issue to the AO for fresh adjudication. In compliance, the AO reiterated the addition of Rs. 20,35,000, which the CIT(A) again restricted to Rs. 5,00,000. The assessee argued that the security deposits were recorded in regular books of account and disclosed in the return of income filed on 30th Oct 1995. The CIT(A) noted that the AO failed to bring any incriminating material found during the search to support the addition. The Tribunal held that statements recorded during the search do not constitute evidence found as a result of search and deleted the addition of Rs. 20,35,000. Issue 2: Addition of Rs. 3,06,000 on account of inflated salary The AO made an addition of Rs. 3,06,000 based on statements from a few salesmen during the search, indicating they received Rs. 1,000 per month instead of Rs. 1,200 recorded in the books. The CIT(A) restricted this addition to Rs. 46,800. The Tribunal, applying the same legal principles as in the first issue, held that statements obtained during the search do not constitute evidence found as a result of search. Consequently, the addition of Rs. 3,06,000 was deleted. Conclusion: The appeals of the assessee in IT(SS) Nos. 22 and 24/Chd/2007 were allowed, and the appeal of the Revenue in IT(SS) No. 23/Chd/2007 was dismissed.
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