9911796707
TMI Blog2025 (2) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 - Decided against assessee. Undisclosed cash receipts - CIT(A) in treating 85% of the total cash receipts as income of the assessee - CIT(A) restricted the addition to 85% of unrecorded cash receipts on account of sale of scrap on the ground that the seized documents also contain certain expenditure - HELD THAT:- 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 AO 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 expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18-19 and 2019-20 but only to the extent quantified by the DSIR. However, as held above, since the stipulation came to be introduced w.e.f. 01.07.2016 the section of quantification by the DSIR is not applicable for assessment 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.
Cash expenditure during the year exceeds the unaccounted cash receipts - HELD THAT:- After considering the opening cash balances as on 01.04.2012 as per the seized documents, there is no cash deficit for the impugned assessment year. The Revenue is not in appeal for assessment year 2015-16 for the availability of opening cash balance determined by CIT(A) as per the seized document. Therefore, no infirmity in the order of the Ld. CIT(A) deleting the addition made by the Assessing Officer on account of unexplained expenditure u/s 69C. X X X X Extracts X X X X X X X X Extracts X X X X ..... und from the cabin of the Head-Cashier Shri Shrikant S Dalvi. In the pen drive, various data including excel sheets were found wherein certain unaccounted transactions in the form of cash receipts and cash payments were mentioned. The print outs of these excel sheets found in the computer and the pen drive of Shri S.S. Dalvi were taken and subsequently seized as per Bundle nos. 2 to Bundle no.9 of Anneuxre A to the Panchanama. The Assessing Officer further observed that Shri Shrikant S Dalvi, on being confronted by the authorized officer during the course of the search, had in his statement recorded u/sec.131 of the Act had accepted that the sales appearing in bundle nos.2 to 9 contain the year-wise summary of sales made in cash by GTFL and payments made in cash by GTFL. He had further stated that these cash receipts are on account of sale of scrap materials and the payments made in cash are on account of GEO Project BD [Business Development] payments, sales incentive payments, miscellaneous payments for official work and the same are unaccounted. 6. The Assessing Officer reproduced the scanned copy of the statement of the same in the assessment order. He further noted that on bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materialized into transactions giving rise to income of the assessee which has not been disclosed in the regular books of account by such assessee, have to be disregarded for the purposes of assessments to be framed u/s. 153A of the Act. 10. Without prejudice to the above, it was argued that if it is considered that the records maintained by Mr. Dalvi were indeed with respect to the year-wise details of unrecorded cash receipts and cash payments of GTFL, even then, the entire cash receipts cannot be added and the expenditure should be deducted from such payments for the following reasons : 1. The expenditure is clearly marked and narrated as expenditure for business purposes. 2. The aggregate of cash expenditure is in excess of aggregate of cash receipts. Since the cash expenses incurred are Rs. 3225.74 lakhs as against the cash receipts of Rs. 3165.75lakhs there is no question of any income escaping assessment. 3. The notings in the excel sheets and the statement recorded by Mr. Dalvi, he has stated that the expenses are towards BD "Business Development" and there is no benefit either to the assessee company or any particular individual. 4. There can be no purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee In the statement given under oath by the person responsible for maintaining the record of such transactions, he has admitted the fact of receipt from sales of scraps and other activities in unambiguous terms and it has also been admitted that these receipts are not recorded in the books of accounts. Now, the assessee has taken a U-turn and declared the documents found and seized during the search as "dumb documents". 3.8 The stand taken by the assessee is not in conformity with the provisions of section 292C of the Act under the heading "Presumptions as to assets, books of account etc" As per the provisions of section 292C of the IT Act, if any document is found during the course of search u/s 132 of the Act it may be presumed that such documents belong to the assessee and contents of such documents are true. For the sake of convenience and immediate reference, the provisions of the section are reproduced as under: "292C. (1) 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 under section 132 or survey under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not relatable to the income earned. It may be seen that the assessee has paid illegal payments to officers which is not admissible as deduction u/s. 37(1) of the IT Act. The assessee also failed to co-relate the item and quantum of expenditure incurred for earning income as shown in the above table. Hence, the plea taken by the assessee to estimate the profit from cash receipts is not acceptable and is rejected. The total amount of receipts of Rs. 4,20,44,000/- for the assessment year under consideration is treated as undisclosed income of the assessee and accordingly added to the total income because the assessee was in receipt of cash income which was unrecorded and the assessee failed to offer it even in the return filed after the search action." 13. So far as the un-recorded expenditure is concerned, on being confronted by the Assessing Officer, it was replied by the assessee that the source of such expenditure is out of the cash receipts which is also recorded in the excel sheets. After considering the submissions of the assessee, the Assessing Officer held that the assessee has incurred less expenditure than the income received and therefore, the explanation of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mandatory certificate u/s. 65B(4) of Indian Evidence Act, on record. Further, before relying upon such evidence, a certificate u/s. 65B(4) is a condition precedent to the admissibility of evidence by way of electronic record. Since the Assessing Officer has not obtained such certificate, it was argued that the entire addition made by the Assessing Officer should be deleted. 17. So far as the merit of the case is concerned, the assessee reiterated the same arguments as made before the Assessing Officer. It was submitted that the department had carried out extensive search operation at the business premises of the assessee company from 14.11.2019 to 16.11.2019 and no discrepancy was found either in the cash balance or in the stock. The entire addition was based on the basis of data retrieved from the pen drive in the form of print out of excel sheets and subsequent statement of Shri S S Dalwi. Further, the documents which have been relied upon by the Assessing Officer as per the documents in Bundles-2 to 9 of Annexure A to the Panchnama are dumb documents. Since there is no corroborative evidence or finding that notings on such documents had materialized into transactions giving r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the remand report of the Assessing Officer and the rejoinder of the assessee to such remand report, the Ld. CIT(A) rejected the ground challenging the violation of mandatory condition of obtaining the certificate u/s 65B(4) of the Indian Evidence Act. So far as the addition on account of unrecorded cash receipt is concerned, the Ld. CIT(A) considering the fact that the seized documents contain both unaccounted cash receipts as well as unaccounted cash payments, directed the Assessing Officer to adopt 85% of such unaccounted cash receipts as income. So far as the deduction claimed u/s 35(2AB) is concerned, he gave part relief to the assessee. While doing so, he held that when the assessee discharged its responsibility by filing Form No.3CL in time, he should not have suffered on account of delay in issue of Form No.3CL by the DSIR beyond the statutory period of 120 days. He however, held that while the assessee is eligible for deduction u/s 35(2AB) on the capital expenditure as claimed and certified by the DSIR, however, the assessee is eligible for deduction u/s 35(2AB) on the revenue expenditure to the extent of Rs. 7,17,38,000/- as determined by the DSIR in Form No.3CL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout bringing on record, any corroborative evidence in support of entries recorded in the pen drive and merely on the basis of a statement of Shri Shrikant S Dalvi recorded u/s 131(1A) of the Act. 5. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in estimating undisclosed income of the appellant company at Rs. 3,57,37,400/- being 85% of the alleged unaccounted cash receipts of Rs. 4,20,44,000/- without appreciating that the cash found during the course of search & seizure proceedings tallied with the cash balance available with the appellant company's audited books of accounts, thus neither any unaccounted cash indicative of unaccounted cash receipts nor any shortage of cash indicative of unaccounted cash payments was found at the time of search. 6. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in estimating undisclosed income of the appellant company at Rs. 3,57,37,400/- being 85% of the alleged unaccounted cash receipts of Rs. 4,20,44,000/- without appreciating that appellant company maintains complete stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presumed to be of revenue in nature, the entire expenses side on the same document ought to have been allowed as deduction. 10. On the facts and in the circumstances of the appellant's case and in law, the Ld. Commissioner of Income Tax (Appeals) erred in allowing deduction u/s 35(2AB) only to the extent of Rs. 13,41,29,506/- as against claimed at Rs. 13,81,70,841/-, thereby disallowing the weighted deduction claimed u/s 35(2AB) of the Act to the tune of Rs. 40,41,335/-, being 50% of the revenue expenses ignoring the fact that the books of accounts of the appellant company have been audited and no discrepancy have been pointed out by the auditors with regard to the eligible expenses. 11. The appellant craves leave to add to, alter, amend, modify and/or delete all or any of the foregoing grounds of appeal." 22. The first issue raised by the assessee as per grounds of appeal No.1 to 3 relates to the order of the Ld. CIT(A) in not deleting the addition on account of absence of certificate u/sec.65B(4) of the Indian Evidence Act and the digital evidence cannot be relied upon. 23. Learned Counsel for the Assessee, at the outset, submitted that no certificate u/sec.65B(4) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of data contained in the pen- drive seized from the office of Sh. S.S. Dalvi. The appellant has contended that no Certificate u/s. 65B(4) of Indian Evidence Act was drawn at the time of search and therefore, the said data does not have any evidentiary value. In support of this contention, the appellant, has relied on various case laws as mentioned in its submission. 16. Considering the above submission of the appellant, vide e-mail dated 29/01/2024, the assessing officer was requested to forward the copy of Certificate drawn u/s. 65B(4), of Indian Evidence Act, for the pen-drive seized from the cabin of Shri S.S. Dalvi which has been relied upon while making additions. In response to this, the assessing officer vide e-mail dated 06/02/2024 has forwarded the copy of Certificate u/s. 65B(4) of Indian Evidence Act in respect of the pen-drive and other digital devices/evidences seized from the cabin of Shri S.S. Dalvi. 17. Vide this office notice dated 22/05/2024, the said Certificate u/s 658(4) was forwarded to the appellant for comments. The relevant portion of this notice dated 22/05/2024 is as under :- In your written submission you have claimed that certificate u/s. 65B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n treating 85% of the total cash receipts as income of the assessee. 29. The Ld. Counsel for the assessee at the outset reiterated the same arguments as made before the Assessing Officer and the Ld. CIT(A). She submitted that an extensive search operation took place in the business premises of the assessee company and not a single rupee of discrepancy was found between the physical cash and the cash as per the books of account. Further, the entire stock found during the course of search tallied with the stock as per the books of account and there was no discrepancy at all. She submitted that the entire addition is based on the basis of excel sheets in the pen drive found from the cabin of the head cashier Shri S S Dalvi whose statement was recorded u/s 131 of the Act, who had accepted that the contents of the excel sheets contain year-wise summary of sales made in cash and the payments made in cash. He has also made a statement that these cash receipts are on account of sale of scrap material and the expenditure appearing in the excel sheets are the payments made in cash on account of business development, sales incentives, etc. which are not recorded in regular books of accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act only income is assessable and not a mere receipt. It has been held that income tax authorities cannot assess all receipts; they can assess only those receipts that amount to income, it follows that before they assess a receipt, they must find it to be income and they cannot find so unless they have some material to justify their finding in the absence of sufficient material. 34. Referring to the decision of Hon'ble Delhi High Court in the case of CIT vs. Indeo Airways (P.) Ltd. (2012) 349 ITR 85 (Del) she submitted that the Hon'ble High Court in the said decision has held that where receipts recorded in searched documents are believed to be income, entries of expenditure recorded therein are also to be believed without asking for more evidence for such expenditure. 35. Referring to the decision of Hon'ble Gujarat High Court in the case of DCIT vs. Panna Corporation vide Income Tax Appeal No.323 & 325 of 2000, order dated 16.06.2012 she submitted that the Hon'ble High Court in the said decision has held that not the entire receipts, but only the profit element embedded in such receipts can be brought to tax. 36. Referring to the decision of Hon'ble Gujarat High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. We have also considered the various decisions cited before us by both the sides. We find the Assessing Officer in the instant case made addition of Rs. 4,20,44,000/- on the ground that the same is the unaccounted cash receipt found in the seized documents. According to him, the documents were found during the course of search and the contents thereof are admissible as evidence in the eyes of law when such transactions have been admitted by the person responsible for maintaining the records of such transactions in his sworn statement. The Assessing Officer further noted that the nature of payments mentioned in the seized documents are not relatable to the income earned and the excel sheets also contain the expenditure towards certain illegal payments to officers which is not admissible u/s 37(1). Similarly, the assessee failed to correlate the items and quantum of expenditure incurred for earning the income. He, therefore, rejected the claim of setting off of such income and expenditure or estimation of income on account of cash receipts for sale of scrap which is not recorded in the books of account. 42. We find the Ld. CIT(A) restricted the addition to 85% of unrecord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A) while analyzing the seized documents for assessment year 2018-19 has given the details of several cash expenses on test check basis which according to him are allowable expenses and the details of which are as under: Sr. No. Narration and date of payment Reference of seized page in Bundle No.2 Amount 1 30/05/2017 - Payment on account of Scrap Sales adjust. Page-32, GWRL-Cash Account 2,93,392 2 30/11/2017 - Payment on account of Scrap Sales adjust. Page-29, GWRL-Cash Account 2,18,000 3 23/03/2018 - Payment on account of Scrap Sales adjust. Page-29, GWRL-Cash Account 1,64,281 4 23/03/2018 - Payment on account of Scrap Sales adjust. Page-29, GWRL-Cash Account 1,50,396 5 31/03/2018 - Payment on account of Scrap Sales adjust. Page-28, GWRL-Cash Account 2,48,599 6 31/03/2018 - Payment on account of Scrap Sales adjust. Page-28, GWRL-Cash Account 1,32,183 7 17/04/2017 - related to Bonus Payment Page-29, GWRL-Cash Account 7,00,000 8 17/04/2017 - related to Bonus Payment Page-29, GWRL-Cash Account 21,00,000 9 12/05/2017 - Labour Union Payment Page-33 50,000 10 08/03/2018 - Pentha Project admin expense Page-32 50,000 11 08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities cannot assess all receipts; they can assess only those receipts that amount to income, it follows that before they assess a receipt, they must find it to be income and they cannot find so unless they have some material to justify their finding in the absence of sufficient material. 48. We find the Hon'ble Gujarat High Court in the case of DCIT vs. Panna Corporation (supra) has held that not the entire receipts, but only the profit element embedded in such receipts can be brought to tax. 49. We find the Hon'ble Bombay High Court in the case of CIT vs. Hariram Bhambhani (supra) has upheld the decision of the Tribunal that the entire unaccounted sales cannot be brought to tax but only the profit attributable on that total unrecorded sales consideration which alone can be subject to income tax. 50. We find the Hon'ble Madhya Pradesh High Court in the case of CIT vs. Sharda Real Estate (P) Ltd. (supra) has directed the Assessing Officer to take a specific percentage of sale proceeds received in cash as income rather than making addition of entire amount of sale proceeds received in cash. 51. We find the Hon'ble Delhi High Court in the case of CIT vs. Indeo Airways (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.] 12. Section 37 is a residuary provision, and allows expenditure as deductible while computing the income on the subject to fulfilment of these conditions: a) the expenditure should not be deductible under Sections 30 to 36 of the Act; b) The expenditure must have been incurred wholly and exclusively for the purposes of the assessee's business; c) It should not not be personal in nature; and d) It should not must not be capital in nature." 13. The Explanation to Section 37 (1) of the Act was inserted by Finance (No.2) Act, 1988 with retrospective effect from 01.04.1962, i.e., inception of the Act. This appears to have been a public policy driven amendment, disallowing deduction benefits in respect of illegal activities which could potentially be brought to tax. The phraseology of the provision clarifies that if the (business or commercial) activity is „an offenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the presumption envisaged therein is only a factual presumption. It is in the discretion of the court, depending upon other factors, to decide whether the presumption must be drawn. The expression used in the sub-section is "may be presumed" as is used in section 114 of the Evidence Act, 1872. It is not a mandate that whenever the books of account are seized, the court shall necessarily draw the presumption, irrespective of any other factors which may dissuade the court from doing so." 16. In P.R. Metrani v. Commissioner of Income Tax, Bangalore (2007) 1 SCC 789 the Supreme Court elaborated upon the nature of presumption under Section 132 (4A) and the scheme of the provision, in the following words: "Sub-section (4A) was inserted by Taxation Law (Amendment) Act, 1975 with effect from 1.10.1075 to permit a presumption to be raised in the circumstances mentioned therein. Before the insertion of sub-section (4A) the onus of proving that the books of account, other documents, money bullion, jewellery etc. found in possession or control of a person in the course of a search belonged to that person was on the Income Tax Department. Sub-section (4A) enables an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e presumption. The Court is bound to take the fact as proved until evidence is given to disprove it. In this sense such presumption is also rebuttable. "Conclusive proof" gives an artificial probative effect by the law to certain facts. No evidence is allowed to be produced with a view to combating that effect. In this sense, this is irrebuttable presumption. The words in sub-section (4) are "may be presumed". The presumption under sub-section (4A) therefore, is a rebuttable presumption. The finding recorded by the High Court in the impugned judgment that the presumption under sub-section (4A) is a irrebuttable presumption in so far as it relates to the passing of an order under sub-section (5) of Section 132 and rebuttable presumption for the purpose of framing a regular assessment is not correct. There is nothing either in Section 132 or any other provisions of the Act which could warrant such an inference or finding. Presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in Section 132 or any other provision of the Act to indicate that the presumption provided under Section 132 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in the opinion of this court, did not commit any error of law in holding that such expenses were deductible under the main part of Section 37 (1) of the Act. 18. In view of the above discussion, all questions framed in these appeals are answered in favour of the assessee, and against the revenue. Consequently, the appeals fail and are dismissed." 52. We find the assessee in the instant case has given before the Assessing Officer the net profit percentage for different assessment years which varies from year to year i.e. from 5.5% in assessment year 2013-14 to 22.9% for assessment year 2020-21, the details of which have already been reproduced in the preceding paragraphs (para 11 of this order). 53. Considering the totality of the facts of the case and considering the various judicial precedents cited (supra) according to which only the net profit embedded in such receipts should be taxed when both unaccounted receipts and unaccounted expenses are found during the course of search, we are of the considered opinion that the profit on account of such unaccounted cash receipts should be determined at the same rate or nearby rate of net profit that has been declared by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2AB) will not be allowed. Since the assessee failed to satisfy this condition, the claim of deduction u/s 35(2AB) amounting to Rs. 13,81,70,841/- was disallowed and added to the total income. 58. Before the Ld. CIT(A) it was submitted that the assessee has completed all the formalities for claiming the deduction u/s 35(2AB) and the deduction was disallowed by the assessing officer only because the Form 3CL was not issued by DSIR. The assessee also contended that it had no control over the issuance of Form 3CL by DSIR, however, after the assessment, the DSIR has now issued Form 3CL on 03/10/2023, for AY 2018-19 as well as AY 2019-20. The assessee submitted an application under Rule 46A of I.T. Rules requesting to admit the said certificate as 'additional evidence' as the same could not be filed before the AO because the said Certificate was issued subsequent to completion of assessment. 59. Based on the arguments advance by the assessee, the Ld. CIT(A) called for a remand report from the Assessing Officer. The Assessing Officer submitted his remand report, which was forwarded to the assessee for its comments. After considering the remand report of the Assessing Officer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt eligible for weighted deduction cannot cross that threshold. It is no doubt true that sub-clause (ii) of clause (b) of Rule 6 (7A) categorically provides that the amount of weighted deduction u/s. 35(2AB) has to be restricted to the amount quantified by the prescribed authority. However, we find the clause (b) as extracted above has been substituted by the Income-tax (10th Amendment) Rules, 2016 w.e.f. 01-07-2016 and prior to this substitution, the clause (b) read as under : "(b) The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No.3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval." 62. We find as per the pre-existing clause (b), the prescribed authority was supposed to submit only its report in relation to the approval of in-house R&D facility to the Director General (Income-tax Exemptions) and the stipulation of quantifying the eligible expenditure by the competent authority for the purposes of weighted deduction u/s. 35(2AB) was not there. The only requirement was to submit the report in relation to the approval of in-house R&D facility. Any amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed to prove the nature of transactions recorded in the seized material and the redrafted cash flow cannot be relied upon in absence of verification of availability of opening cash balance as on 01/04/2012 and correct understanding of nature of transactions recorded in the seized material. 3. The appellant craves leave to add, amend, modify or alter any of the grounds. 64. Facts of the case in brief are that the Assessing Officer made addition of Rs. 4,56,38,000/- being unaccounted cash receipts and also made addition of Rs. 49,41,000/- as unexplained expenditure u/s 69C. In appeal, the Ld. CIT(A) restricted such undisclosed cash receipts to 85% of the cash receipts. He however, deleted the addition of Rs. 49,41,000/- on account of unexplained expenditure u/s 69C holding that there is no cash deficit during the year after giving benefit of opening cash balance as on 01.04.2012 after redrafting the cash flow statement. Aggrieved with such order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal. 65. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
