Seized account books u/s132(4A): presumption covers expenses too; unsupported disallowance u/s37(1) overturned.

Where the revenue invoked the presumption under s.132(4A) on seized books/documents, it was bound to give the presumption full effect and presume the truth of all entries, including expenditure, not merely receipts. If it alleged that commission, sundry, or "green box" expenses were inadmissible, excessive, or non-genuine, it had to rebut the presumed correctness by independent material; it could not, consistent with s.132(4A), shift the burden to the assessee to further substantiate entries already presumed true. Mere suspicion could not displace the statutory presumption, and the revenue also failed to show that any expense was prohibited by law or constituted an offence. Disallowance of the expenses under s.37(1) and the consequent addition were set aside in favour of the assessee.

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Issues Involved:
1. Correctness of the impugned order directing the addition of Rs. 3,68,31,145/- to be withdrawn.
2. Correctness of the ITAT's order regarding the disallowance of Rs. 1,93,76,463/- for AY 1998-99 and Rs. 46,35,660/- for AY 1999-2000 towards "green box expenses".
3. Correctness of the Tribunal's order concerning the deletion of the sum originally disallowed by the AO on account of remuneration expenses.
4. Correctness of the impugned order deleting the disallowance of amounts paid towards commission by the assessee.

Issue-wise Detailed Analysis:

1. Correctness of the impugned order directing the addition of Rs. 3,68,31,145/- to be withdrawn:
The Revenue contested the ITAT's order which directed the withdrawal of the addition of Rs. 3,68,31,145/- added under Section 68 on account of credit entries of cash allegedly received from non-existing people. The AO doubted the genuineness, identity, and creditworthiness of the depositors based on materials seized during the search. However, the ITAT concluded that the business activities and income belonged to the assessee and not to Naveen Gera, thus rejecting the addition.

2. Correctness of the ITAT's order regarding the disallowance of Rs. 1,93,76,463/- for AY 1998-99 and Rs. 46,35,660/- for AY 1999-2000 towards "green box expenses":
The AO disallowed these expenses, deeming them illegal. The CIT (A) partially accepted the assessee's claim, allowing some expenses while disallowing others based on the proportion of receipts to expenses. The ITAT, however, accepted the assessee's contention that these expenses were necessary for earning the income and should be fully allowed. The ITAT observed that the expenses were reasonable considering the business operations and the lack of an office in Russia.

3. Correctness of the Tribunal's order concerning the deletion of the sum originally disallowed by the AO on account of remuneration expenses:
The AO disallowed remuneration expenses, suspecting them to be bribes ("Rishwat"). The CIT (A) and ITAT found no evidence to support this suspicion and allowed the expenses as legitimate remuneration costs. The ITAT emphasized that without concrete evidence, the AO's suspicion alone could not justify the disallowance.

4. Correctness of the impugned order deleting the disallowance of amounts paid towards commission by the assessee:
The AO had disallowed part of the commission payments on an ad hoc basis, allowing only 10% of the freight charges as reasonable. The CIT (A) and ITAT found no basis for this ad hoc disallowance, noting that the seized records did not support the AO's restriction. The ITAT upheld the full allowance of the commission expenses as claimed by the assessee.

General Observations:
The court noted that the Revenue's reliance on Section 132 (4A) presumption should be consistent. If the Revenue presumed the correctness of the income entries in the seized documents, it should also presume the correctness of the expense entries. The court found that the Revenue could not selectively accept and reject entries based on suspicion without additional evidence. The court emphasized that the presumption under Section 132 (4A) is rebuttable and should be applied uniformly.

Conclusion:
The court held that the ITAT did not err in allowing the expenses claimed by the assessee under Section 37 (1) of the Act. The Revenue's appeals were dismissed, and all questions were answered in favor of the assessee.

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