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2024 (11) TMI 1447 - AT - Income TaxDisallowance of claim of deduction of expenditure against the unaccounted cash receipts from sale of spent solvents / scrap - HELD THAT - This issue is squarely covered in favour of the assessee by the decision of MSN Pharmachem Private Limited 2024 (11) TMI 499 - ITAT HYDERABAD where the Tribunal has directed the AO to allow 60% of expenditure against unaccounted cash receipts from sale of spent solvents / scrap for the year under consideration. Thus we direct the AO to allow 60% of the receipts as expenditure against unaccounted cash receipts from sale of spent solvents / scrap and sustain 40% of addition towards unaccounted sale of spent solvents and scrap. Appeal of assessee is partly allowed.
ISSUES PRESENTED and CONSIDERED
The primary issue considered was the disallowance of the claim for deduction of expenditure against unaccounted cash receipts from the sale of spent solvents and scrap. The key questions included:
ISSUE-WISE DETAILED ANALYSIS 1. Disallowance of Deduction of Expenditure Against Unaccounted Cash Receipts Relevant Legal Framework and Precedents The legal framework involved the assessment of unaccounted income under Section 153A of the Income Tax Act, 1961, following a search and seizure operation under Section 132. The ITAT Hyderabad Benches had previously addressed similar issues, notably in the case of MSN Pharmachem Private Limited, where a 60% deduction was allowed for expenditure against unaccounted cash receipts. Court's Interpretation and Reasoning The Tribunal considered the seized material, which included entries of both cash inflow from unaccounted sales and cash outflow purportedly representing payments to employees for handling hazardous waste. It emphasized that the seized document should be read in its entirety rather than selectively. Key Evidence and Findings The evidence included a Sony pen drive containing Excel sheets with details of unaccounted cash transactions, sworn statements from key personnel, and notarized affidavits from employees and labor contractors. These documents indicated that the unaccounted cash was used to pay workers involved in handling hazardous waste. Application of Law to Facts The Tribunal applied the principle that income cannot be earned without incurring some expenditure. It recognized that handling and disposing of hazardous waste involves costs such as wages, transportation, and packing. Treatment of Competing Arguments The assessee argued for full deduction of the claimed expenditure based on seized evidence and affidavits, while the Revenue contended that the claim was an afterthought and lacked sufficient evidence. The Tribunal found merit in the assessee's position, noting the affidavits and the absence of evidence to the contrary. Conclusions The Tribunal concluded that a 60% deduction for expenditure against unaccounted cash receipts was justified, based on the nature of the business and the evidence presented. SIGNIFICANT HOLDINGS Verbatim Quotes of Crucial Legal Reasoning "The said seized material should be read as a whole for the purpose of assessment instead of cherry-picking of data according to the convenience of the Assessing Officer or the assessee." Core Principles Established The Tribunal reinforced the principle that expenditure must be considered when assessing income, particularly when evidence suggests that costs were incurred in generating that income. Final Determinations on Each Issue The Tribunal directed the Assessing Officer to allow 60% of the receipts as expenditure against unaccounted cash receipts from the sale of spent solvents and scrap, sustaining 40% of the addition towards unaccounted sales for both assessment years 2018-19 and 2019-20.
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