9911796707
TMI Blog2025 (2) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 as the "lead" appeal before him. 3. Facts of the case, in brief, are that the assessee is a Public Limited Company and provides solutions in aquaculture cage nets, fishing nets, sports nets, safety nets, agricultural nets, coated fabrics, polymer ropes and geo-synthetics etc. The key products manufactured by the assessee viz., Garware Technical Fibres Ltd [in short "GTFL"] include ropes, trawling nets, gill nets, doe nets, nursery cages, predator cages, fitness ropes, reinforced soil structures, gabion gravity retaining walls and others etc. It has filed its original return of income under section 139 of the Income-tax Act, 1961 [in short "the Act"] on 31.10.2018 declaring total income of Rs. 124,08,48,810/- for the impugned assessment year. 4. A search and seizure action u/s. 132 of the Act was conducted in the assessee's case on 14.11.2019. In response to notice u/sec.153A of the Act issued on 04.01.2021, the assessee filed the return of income on 18.01.2021 declaring total income of Rs. 124,08,48,810/-, which was the income originally returned. Statutory notice u/s. 143(2) and 142(1) of the I.T. Act were issued and served upon the assessee, in response to which, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statement given by Shri Shrikant S. Dalvi, have been offered for tax in the return of income. 8. The assessee in response to the same filed a detailed written submission stating that there was neither any seizure of cash nor any unaccounted cash found at the office or factory premises of the assessee company or with Mr. Dalvi. Other than the excel sheets working as contained in the pen drive, no other documents such as invoices, bills, vouchers, etc. were found/seized which supported the excel sheets. It was submitted that there is no corroborative evidence found to support the excel sheets having some figures alleged to be cash receipts and payments. Therefore, there is no "relatable" material or information having any direct relation or nexus with the excel sheets. 9. It was submitted that noting in the excel sheets saved in the pen drive represent items of estimated receipts/expenses in the nature of brief noting and they indicate some expenses of GTFL. It was submitted that noting was made by the Cashier for his information and for assessing the cash-flow requirements which could arise in the near future. It was further submitted that the actual receipts/expenses, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that expenditure is clearly marked and narrated as expenditure for business purpose, considering the genuineness appropriate ratio/percentage can be applied and allowed. 11. It was accordingly argued that the entire alleged cash receipts cannot be held to be the income of the assessee and at best the net profit ratio prevailing in the respective financial years can be applied vis-à-vis the receipts so recorded. The assessee also filed the year-wise details of net profit earned which is as under: F.Y. Unaccounted Cash Receipts - in lakhs Unaccounted Cash Payments - in lakhs % PBT Rs. Lakhs 2012-13 695.93 663.73 5.5% 38.54 2013-14 609.81 588.68 5.7% 34.60 2014-15 452.85 518.48 7.7% 34.84 2015-16 314.14 325.8 10.6% 33.30 2016-17 456.38 505.79 14.5% 66.18 2017-18 420.44 386.42 17.3% 72.74 2018-19 106.39 112.05 17.9% 19.04 2019-20 109.81 126.79 22.9% 25.15 Total 3165.75 3225.74 324.38 12. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee and made addition of Rs. 4,20,44,000/- to the total income of the assessee for the impugned assessment year by recording as under : "3.7 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and surmises of AO. There is adequate material or details about the nature and ownership of the documents. Hence in the light of Section 292C and the nature of the transaction mentioned, the documents found cannot be considered as "Dumb Documents". 3.10. The next argument taken by the assessee is that if the receipts are taken for taxation, it cannot be said that the entire cash receipts is income of the respective assessment year. The assessee has further submitted that in the said excel sheet the details of expenditure incurred in cash is also given and considering the same, appropriate net profit ratio may be applied. The submission of the assessee has been carefully considered. During the course of search, a chart containing details of head wise cash receipts and expenditure was found and seized as per page no 20 and 21 of Bundle No. 9. On going through the details of the expenditure mentioned in this chart, it is seen that the assessee has categorized the receipts and payments year wise in the following categories :- Sr.No. Receipts Payments 1. Raw material sale collection GEO project BD Payments 2. Sale of Scrap material Excise officers payment 3. Export freig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to submit the report given by the DSIR in Form-3CL quantifying the admissible revenue and capital expenditure. Therefore, the Assessing Officer vide letter dated 23.09.2021 asked the assessee to furnish copy of Form 3CL. It was mentioned there in that in the absence of report of the competent Authority in Form-3CL, the claim of deduction u/s 35(2AB) will not be allowed. Since the assessee failed to satisfy this condition, the Assessing Officer disallowed the claim of deduction u/s 35(2AB) amounting to Rs. 13,81,70,841/- and added the same to the total income of the assessee. 15. The Assessing Officer accordingly, determined the total income of the assessee at Rs. 142,10,63,651/- as against the returned income of Rs. 124,08,48,810/-. 16. Before the Ld. CIT(A), apart from challenging the addition on merit, the assessee took a ground that the entire case has been built-up by the Assessing Officer on the basis of data retrieved from the pen drive in the form of print-outs of excel sheets and subsequent statement of Shri Shrikant S. Dalvi. Therefore, the authenticity of such data and admissibility of electronic evidence is very much essential to substantiate the allegations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as against cash receipts of Rs. 3165.75 lakh, therefore, there is no question of escapement of any income. It was further argued that such expenditure was also not in violation of section 40A(3) since such expenses have not been claimed / debited in the books of account. It was further submitted that a plain reading of the seized documents reveal that multiple expenses have been aggregated and recorded in a single entry and thus each expense is below Rs. 10,000/- although clubbed together and recorded periodically in larger amounts. Relying on various decisions it was submitted that only a percentage of profit of such unrecorded sales should be taken and not the entire cash receipts can be added to the total income of the assessee. 19. So far as the denial of deduction u/sec.35(2AB) is concerned, it was argued that the assessee had completed all the formalities for claiming deduction u/sec.35(2AB) of the Act and the deduction was disallowed by the Assessing Officer only because the requisite Form-3CL was not issued by DSIR. It was argued that the assessee had no control over the issuance of Form-3CL by DSIR. However, since the assessee has obtained the said certificate from DSIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely based on digital evidence, in the form of excel sheets contained in a pen drive, which is an inadmissible evidence, as per section 65B of the Indian Evidence Act, 1872. 2. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of become Tax (Appeals) erred in not deleting in entirety, the addition of Rs. 4,20,44,000/- as the mandatory conditions specified in section 65B of Indian Evidence Act, 1872 are not satisfied. The purported certificate under section 65B(4) is neither signed by the Authorized Officer, nor signed by the Forensic expert nor by any of the Witnesses, therefore constituting inadmissible evidence 3. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of become Tax (Appeals) erred in not deleting in entirety, the addition of Rs. 4,20,44,000/- based on digital evidence seized by the search party without following the mandatory procedure prescribed for seizure of digital evidence as laid down in Chapter 6 of Digital Evidence Investigation Manual 2014, issued by CBDT u/s. 119 of the Act, as is evident from the Panchnama prepared during search & seizure proceedings. 4. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition sustained by Ld. Commissioner of Income Tax (Appeals) deserves to be deleted. 8. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in sustaining the additions despite the fact that no corroborative evidence in the form of invoices, bills, vouchers, etc which supported the excel sheets was found during the course of extensive search & seizure proceedings. In the absence of any corroborative evidences and a finding that notings on such documents had materialized into transactions giving rise to income of the appellant which had not been disclosed in regular books of account, these documents are nothing but 'dumb documents" 9. Without prejudice to aforesaid grounds and on the facts and in circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in ignoring the decision of Hon'ble Supreme Court in the case of P.R. Metrani, 157 Taxman 325 (SC), to consider that both receipts and payments recorded in seized material are part of same record and the presumption, once drawn under section 132(4A), about the contents of the seized material has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not give any comment on the certificate drawn u/sec.65B(4) of the Act. Since the Ld. CIT(A) had held that certificate u/sec.65B(4) of the Act was duly drawn at the time of search operation, therefore, the contention of the assessee that in the absence of said certificate, the digital evidence cannot be relied upon does not have any force. He accordingly submitted that the order of the Ld. CIT(A) is in accordance with law and therefore the same should be upheld and the grounds raised by the assessee on this issue should be dismissed. 25. We have heard the rival arguments made by both the sides and perused the material available on record. We find although the assessee had never challenged the issue of no certificate drawn u/sec.65B(4) of the Indian Evidence Act before the Assessing Officer, however, the assessee has taken this ground before the Ld. CIT(A), who called for a remand report from the Assessing Officer. We find the Assessing Officer, vide his remand report, forwarded a copy of certificate drawn u/sec.65B(4) of the Indian Evidence Act and the Ld. CIT(A) thereafter confronted the same to the assessee. However, the assessee could not give any counter-comment as to how t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 26. Since in the instant case there was a certificate drawn u/sec.65B(4) of the Indian Evidence Act for the pen-drive seized from the cabin of Shri Shrikant S. Dalvi which was relied upon by the Assessing Officer while making the impugned addition and since such a copy of the certificate was provided to the assessee for its comments and the assessee could not make any counter-comments to the certificate so issued by the Assessing Officer u/sec.65B(4) of the Indian Evidence Act, therefore, in absence of any contrary material brought to our notice, in our opinion the Ld. CIT(A) is justified in rejecting the above grounds. So far as the various decisions relied on by the Learned Counsel for the Assessee are concerned, all those decisions are distinguishable and not applicable to the facts of the present case especially when the Assessing Officer in the instant case has obtained a certificate u/sec.65B(4) of the Indian Evidence Act and copy of which was also forwarded to the assessee and the assessee had no answer to the same. Accordingly, the first issue raised by the assessee in the grounds of appeal nos.1 to 3 is dismissed. 27. Similar grounds have been raised by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 126 (Mad) v) SKM Animal Feeds and Foods (India) (P.) Ltd. vs. ACIT (2023) 156 taxmann.com 385 vi) CIT vs. D.K. Gupta (2008) 174 Taxman 476 (Del) vii) ACIT vs. Shri Anand Jaikumar Jain vide ITA Nos.3820 to 3823/MUM/2019, dated 22.04.2022 viii) M/s. Simtools Pvt. Ltd. vs. DCIT vide ITA No.1574/Mum/2020, dated 09.02.2022 ix) ITO vs. Kranti Impex Pvt. Ltd. vide ITA No.1229/Mum/2013, dated 28.02.2018 x) S.P. Goyal vs. DCIT (2002) 82 ITD 85 (TM) xi) D.A. Patel vs. DCIT [(1999) (3) Tmi 639 - ITAT Mumbai] 31. Referring to the copy of the assessment order she drew the attention of the Bench to the profit rate for the various assessment years which are as under: A.Y. % PBT 2012-13 5.5% 2013-14 5.7% 2014-15 7.7% 2015-16 10.6% 2016-17 14.5% 2017-18 17.3% 2018-19 17.9% 2019-20 22.9% 32. She accordingly submitted that the maximum addition that can be made cannot exceed Rs. 324.38 lakh. Referring to the decision of Hon'ble High Court of Kerala in the case of CIT vs. P D Abrahm (2012) 20 taxmann.com 823 (Ker.) she submitted that the Hon'ble High Court in the said decision has held that when the department relies on the seized records for estimating undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage of sale proceeds received in cash as income rather than making addition of entire amount of sale proceeds received in cash. 39. Referring to various other decisions, copies of which are placed in the paper book, she submitted that the entire amount of cash receipts on account of sale of scrap cannot be added to the total income either without allowing the credit for expenses so recorded in the seized documents or a specific percentage of the total cash receipts on account of sale of scrap. 40. The Ld. DR on the other hand heavily relied on the order of the Assessing Officer. He submitted that the Assessing Officer has given justifiable reasons for making the entire addition. In any case, the Ld. CIT(A) has already restricted such element of profit to 85% of the total cash receipts, therefore, the assessee should not have any grievance especially when the Revenue has not filed any appeal against the part relief given by the Ld. CIT(A). He also relied on the following decisions: i) Nagubai Ammal and others vs. B. Shama Rao and others (1956) SCR 451 (SC) ii) Pooran Mal vs. Director of Inspection (1974) 93 ITR 505 (SC) iii) Dr. Partap Singh vs. Director of Enforcement ((1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the expenditure from the receipts or alternatively, a percentage of such unaccounted cash receipts at best can be brought to tax in the light of the various decisions cited by her. 43. We find some force in the above arguments of the Ld. Counsel for the assessee. It is an admitted fact that during the course of search, excel sheets which were retrieved from the pen drive seized from the cabin of head cashier Shri S S Dalvi, contain both unaccounted cash receipts as well as unaccounted cash expenditure. While the Assessing Officer taxed the entire unaccounted cash receipts as income of the assessee, however, he ignored such unaccounted cash expenditure on the ground that the assessee could not correlate such expenditure as relatable to such unaccounted cash receipts and the said expenditure also contains certain expenditure not allowable as per provisions of Explanation to section 37. It is the settled position of law that the seized documents are to be considered as a whole and the department cannot consider a part of the seized documents which suits it and ignore the other part that does not suit it. 44. So far as the allegation of the Assessing Officer as well as the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 37(1) of the Act i.e. on account of illegal payments, etc. However, in the instant case, this exercise has not been done either by the Assessing Officer or the CIT(A). It is also not know as to whether the "officers monthly payment" and Excise Officers payment" mentioned by the Assessing Officer as per the extracts of the excel sheet retrieved from the pen drive is in fact given to any government official or any middleman who in the name of the government official has pocketed the same. No name of any government official is found so as to treat the same as illegal. At the same time, if the contention of the Ld. Counsel for the assessee that the addition should be restricted to gross receipts less expenditure is accepted, then it also gives a distorted figure since in certain years such expenditure is more than the gross receipts. Under these circumstances, in our opinion, only a percentage of such receipts which is commensurate with the net profit for the respective years should be brought to tax to meet the ends of justice. 46. We find the Hon'ble Kerala High Court in the case of CIT vs. P D Abrahm (supra) has held that when the department relies on the seized records for est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned order, accepted the assessee's cross objection. The threshold point which this court has to decide is whether the assessee is right in contending that since the revenue has suffered concurrent findings on questions of fact, no substantive question of law arises for consideration by the court. There is authority for this proposition, in the form of this Court's judgment in Commissioner of Income Tax v. S.J. Knitting and Finishing Mills P. Ltd., [2004] 266 ITR 0582, that in such circumstances, the findings of the lower authorities are to be treated as pure findings of fact, and the reference consequently has to be answered against the revenue. 10. This court does not wish to rest its decision on the narrow ground of the appeals involving pure issues of fact, especially since the parties made elaborate submissions on the merits of the case. 11. In order to resolve the main issue in controversy, it would be relevant to notice certain provisions of the Income Tax Act. The Explanation to Section 37 (1) is relevant and reads as follows: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs would have to be assumed in respect of all entries in the books, and not merely the entries of income (or receipts). 15. Section 132 (4A) reads as follows: "(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting ITA-1620 & 1622/2010 Page 12 of, any particular person, are in that person' s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested." As to the nature of the presumption, the Kerala High Court, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of realization of taxes, penalties etc. Search and seizure is a serious invasion in the privacy of the person. Section 132 which is a complete code by itself provides that the money, bullion or the books of account etc. should not be retained unnecessarily and that the provisional assessment made under Section 132 for the purpose of retention of the books is passed within a specified time in accordance with law. It provides that the books of account, money and bullion which are not required are not retained unnecessarily thereby causing harassment to the person concerned. In order to see that the assessment order is framed within the time frame provided under Section 132, legislature provided for a rebuttable presumption to be raised against the person from whose possession and control the books of account, money, bullions etc. are seized so that the order can be passed within the time frame provided under Section 132. A presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorized to draw a particular inference from a particular fact. It is of three types, (i) "may presume", (ii) "shall presume" and (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be given effect to, whenever the statute directs a particular non- existent state of affairs to be assumed. (Ref State of Bombay v. Pandurang Vinayak, AIR 1953 SC 244; Karnataka State Road Transport v B.A. Jayaram & Ors, AIR 1984 SC 790). In these circumstances, the effect of the presumption (which bade the revenue, when it chose to invoke it, to presume that the "contents of such books of account and other documents are true..". Therefore, in the absence of any materials, in the form of documents, the revenue could not have denied the benefit of any expenses which would otherwise have inured to the assessee, as an allowable deduction under Section 37 (1). 17. So far as the heads of expenses are concerned, the revenue was unable to show how any of them were prohibited by law, or amounted to offences. The assessee's business was to transport export goods, and ensure their door to door delivery in Moscow. Confirmations had been received during the course of proceedings, from some of the assessee's clients. The assessing officer himself allowed some deductions; which in turn implied that what aroused his suspicion was the seemingly high level of expenditure. On this aspect, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef on account of deduction claimed u/s 35(2AB) of the Act. 57. After hearing both the sides, we find the assessee has claimed deduction u/s 35(2AB) amounting to Rs. 13,81,70,841/- on account of capital and revenue expenditure incurred for in house R&D activities. During the course of assessment proceedings, the assessee was asked to furnish the details of capital and revenue expenditure incurred for R&D purposes. In response thereof, the assessee submitted the details and supporting documentary evidences along with report in Form No. 3CLA. Vide notice u/s 142(1) enclosed with a questionnaire dated 15.03.2021, the assessee was asked to furnish / submit the necessary documents including report given by the DSIR in form no. 3 CL as required under rule 6(7A) of the IT Rules. The assessee submitted necessary documents such as approval granted by the DSIR in Form 3CM, copies of annual report submitted in Form 3CLA, details of capital and revenue expenditure incurred and supporting bills and invoices. But the assessee failed to submit the report given by the DSIR in Form 3CL. quantifying the admissible revenue and capital expenditure. The assessee was again asked to furnish copy of Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for assessment years 2016-17, 2017-18 and 2019-20. 60. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both the sides. We find clause (b) of Rule 6 (7A) as applicable from 01-07-2016 reads as under: "(b) The prescribed authority shall furnish electronically its report - (i) In relation to the approval of in-house research and development facility in Part A of Form No.3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Act in Part B of Form No. 3CL;'. 61. As per sub-clause (i) of clause (b) of Rule 6 (7A) the prescribed authority shall furnish its report in relation to the approval of in-house R&D facility quantifying the amount of expenditure incurred during the previous year, which is eligible for weighted deduction under sub-section (2AB) of section 35. We find it is on the basis of the above sub-clause (ii) of clause (b) of Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2016-17 and therefore, the Ld. CIT(A) is not justified in restricting the deduction to the extent determined by the DSIR for assessment year 2016-17. We therefore, set aside the order of the Ld. CIT(A) on this issue for assessment year 2016-17 and direct the Assessing Officer to allow the claim of deduction u/s 35(2AB) of the entire revenue expenditure. Thus, the grounds for assessment year 2016-17 on this issue are decided in favour of the assessee whereas the grounds for assessment years 2017-18, 2018-19 and 2019-20 on this issue are dismissed. ITA No.1831/PUN/2024 by Revenue (A.Y. 2017-18) 63. The grounds raised by the Revenue are as under: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in restricting the addition of Rs. 4,56,38,000/- on account of undisclosed cash receipts to the extent of 85% of the cash receipts without appreciating the fact that the assessee has failed to prove the nature of transactions recorded in the seized material, nexus between receipts and payments found recorded in the seized material and its business expediency with necessary supporting documents. 2. On the facts and circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash-flow statement after considering the cash available as on 1.04.2012 (as per seized document). Since, after giving benefit of opening cash balance as on 1/4/2012, there is no cash deficit for the year under consideration, no addition u/s 69C of the Act can be made. Accordingly, the addition of Rs. 49,41,000/- made by the assessing officer is directed to be deleted. The ground no. 3 is disposed accordingly." 67. We find the Ld. CIT(A) while deciding the appeal for the impugned assessment year has followed his finding for assessment year 2015-16 on this issue at para 71 which reads as under: "71. In view of above, by considering the opening cash balance as on 01/04/2012, the cash-flow statement for 01/04/2012 to the date of search is re-drafted as under:- F.Y Unaccounted Cash Receipts- (in lakhs) Unaccounted Cash Payments - (in lakhs) Excess cash / Short-fall cash (in lakhs) Cash Balance in hand (in lakhs) Opening balance on 01.04.2012 115.93 2012-13 695.93 663.73 +32.20 148.13 2013-14 609.81 588.68 +21.13 169.26 2014-15 452.85 518.48 -65.63 103.63 2015-16 314.14 325.80 -11.66 91.97 2016-17 456.38 505.79 -49.41 42.56 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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