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2017 (12) TMI 1170 - HC - Income TaxDisallowance u/s 37 - benefit of presumption under Section 132 (4A) - documents seized at the time of search - Held that - No hesitation to hold that the presumption under Section 132(4A) of the Act applies in favour of the assesses insofar as the expenditure being supported by the documents seized at the time of search. There is no need for a further proof under Section 37, since as we have found, the Assessing Officer did not endeavor to carry out an enquiry and investigation into the source of investment or the genuineness of the expenditure made. However, the presumption can have effect only to the extent of the documents seized and nothing further. - Decided in favour of assessee
Issues Involved:
1. Legitimacy of the Tribunal's allowance of entire expenditure claimed by the assessee without reference to seized materials and presumption under Section 132(4A) of the Income Tax Act, 1961. 2. Requirement for the assessee to provide strict proof under Section 37 of the Income Tax Act for the claimed expenditures. 3. Extent to which the presumption under Section 132(4A) should be applied to the seized materials. Issue-wise Detailed Analysis: 1. Legitimacy of the Tribunal's allowance of entire expenditure claimed by the assessee without reference to seized materials and presumption under Section 132(4A) of the Income Tax Act, 1961: The Tribunal allowed the entire expenses claimed by the assessees, which were engaged in real estate business. The assessees argued that the development expenses were necessary to achieve the high sale prices within a short period. The Assessing Officer (AO) disallowed major portions of the claimed expenses, reasoning that the vendors had already claimed development expenses in their returns. However, the Tribunal found that the AO did not conduct a proper inquiry into the source of investment and the genuineness of the expenditure, relying instead on conjecture. The Tribunal noted that the seized documents included evidence of both cheque and cash payments for development, which supported the assessees' claims. The High Court upheld this view, stating that the presumption under Section 132(4A) applies to the documents seized, and the AO failed to rebut this presumption. 2. Requirement for the assessee to provide strict proof under Section 37 of the Income Tax Act for the claimed expenditures: The AO and the Department argued that the assessees should provide strict proof of the expenditures under Section 37 of the Act. However, the High Court held that the presumption under Section 132(4A) of the Act, which assumes the contents of seized documents to be true, applies in favor of the assessees. Since the AO did not rebut this presumption or conduct an inquiry into the source and genuineness of the expenditures, further proof under Section 37 was not required. The High Court emphasized that the seized documents, which included evidence of significant expenditures, supported the assessees' claims. 3. Extent to which the presumption under Section 132(4A) should be applied to the seized materials: The High Court clarified that the presumption under Section 132(4A) applies to the documents seized during the search. The Tribunal's decision to allow the entire claimed expenditure was based on this presumption. However, the High Court limited the allowance of expenditure to the amounts revealed from the seized documents, whether cash or cheque payments. The Court rejected the assessees' claim for additional expenditures on the grounds that they did not produce any books of accounts before the lower authorities and that the nature of the work carried out did not justify liabilities accrued in the assessment year being settled in subsequent years. Judgment: The High Court rejected the Departmental appeal for the assessment year 2007-08 (ITA No.263/2014). For the assessment year 2008-09, the Court partially upheld the Tribunal's decision but limited the allowance of expenditures to the amounts supported by the seized documents. Consequently, the disallowance deleted by the Tribunal for M/s. Right Hand Developers India (P) Ltd. was revived to the extent of ?1,23,44,050/-, and for M/s. Damac Holdings Pvt. Ltd., it was revived to the extent of ?1,35,39,893/-. The appeals were ordered accordingly, with parties to bear their respective costs.
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